Steelmaking Raw Material Prices Through October

Prices of steelmaking raw material moved in differing directions over the last 30 days, according to Steel Market Update’s latest analysis. Through the latest data available as of Oct. 27, coking coal prices increased 15% over the last month, aluminum prices rose 8%, and zinc prices increased 2%. Pig iron prices remained stable. Busheling scrap prices decreased 11%, and shredded scrap and iron ore prices both fell 6%. Prior to October, we saw consecutive monthly declines for all products following the record-high levels seen earlier this year.

Compared to levels three months prior, prices for five of the six raw materials in this analysis have declined. All materials are priced below levels one year ago, with multiple products down by 20% or more.

Table 1 summarizes the price changes of the seven materials considered in this analysis. It reports the percentage change from one month, three months, and one year prior for each product.

Iron Ore

After rising to record-high levels last summer, the Chinese import price of 62% Fe content iron ore fines receded to near pre-Covid levels by the end of 2021. Prices increased from late 2021 through April of this year but have since steadily declined. Figure 1 shows the price of 62% Fe delivered North China at $92 per dry metric ton (DMT) as of Oct. 26. The last time iron ore prices were this low was nearly one year ago, in mid-November 2021 when they briefly reached a low of $91 per DMT. Prior to that instance, iron ore prices were last in this territory in May 2020. Prices have decreased 10% compared to levels three months ago and are 22% less than prices one year ago.

Coking Coal

The price of premium hard coking coal FOB east coast of Australia surged in March of this year to a record high of $660 per DMT. Prices quickly declined in the following months, falling to a 13-month low of $193 per DMT in early August. Prices have since ticked back up; the latest price as of Oct. 26 is $297 per DMT. This is up 53% from the early-August low, but down 55% from the March peak (Figure 2). Prices are up 33% compared to three months prior, but down 26% from prices one year ago. For comparison, the average coking coal price between 2017–2020 was $172 per DMT.

Pig Iron

Most of the pig iron imported to the US had come from Russia, Ukraine, and Brazil. This report summarizes prices out of Brazil and averages the FOB value from the north and south ports.

Pig iron prices had been elevated but relatively stable for most of 2021 and early 2022. Prices jumped 60% in March following the invasion of Ukraine by Russian forces — which limited or halted supplies from both nations. April saw record-high pig iron prices at $975 per DMT. Prices eased each month throughout September, holding steady this month at $440 per DMT. Prices are down 41% compared to three months ago and down 12% from one year prior. Recall that pig iron prices had reached a multi-year low of $275 per DMT in June 2020 (Figure 3).

Scrap

Hot-rolled steel prices fluctuate up and down with the price the mills must pay for their raw materials. Changes in the relationship between scrap and iron ore prices offer insights into the competitiveness of integrated mills, whose primary feedstock is iron ore, compared to minimills, whose primary feedstock is scrap. Figure 4 shows the spread between shredded and busheling scrap, priced in dollars per gross ton in the Great Lakes region.

Scrap prices have declined each of the last six months. Busheling scrap prices fell $45 per gross ton to $360 per gross ton in October, while shredded scrap prices declined $25 to $380 per gross ton. It is not often that busheling scrap does not carry a premium price to shred, but that has been the case for the last two months. Recall that March and April saw record-high scrap prices, with busheling reaching $775 and shred hitting $600 per gross ton. Prior to 2021, the highest point for scrap prices over the last decade was $510 per gross ton for busheling in 2011 and $473 per gross ton for shredded in 2012. SMU sources expect scrap prices to marginally ease again in November.

Figure 5 shows the prices of mill raw materials over the past four years. Iron ore prices are 58% below the May 2021 peak of $221 per DMT, down 22% from this time last year. Shredded scrap prices are down 37% from the March/April 2022 high, and down 16% versus levels one year ago.

To compare the two, SMU divides the shredded scrap price by the iron ore price to calculate a ratio (Figure 6). A high ratio favors the integrated/BF producers and a lower ratio favors the minimill/EAF producers.

At the current 4.13 ratio shown below, integrated producers have mostly held onto the cost advantage since March. In November 2021 we saw a ratio of 5.84, the highest since mid-2018. The scrap-to-iron ore ratio reached a record low (within SMU’s 12-year data history) of 1.86 in August 2020.

Figure 7 shows how the price of hot-rolled steel generally tracks with the price of busheling scrap. Bush has declined $415 per gross ton (54%) from the April peak and is roughly in line with pre-pandemic levels. As of Tuesday, Oct. 25, the SMU hot rolled price average decreased $20 per ton week-over-week to $710 per net ton. This is down $770 per net ton (52%) from the April 2022 peak, and the lowest price recorded since November 2020.

Zinc and Aluminum

Zinc is used in galvanized and other coated steel products. Spot prices have fluctuated dramatically in the last year; the LME cash price for zinc reached a record high of $2.05 per pound in May, declining through July to reach a ten-month low of $1.35 per pound. Prices picked back up through August to reach a high of $1.68 per pound. After declining through September, prices have remained relatively stable for the last six weeks. The latest price as of Oct. 27 is $1.35 per pound, up 2% compared to 30 days prior, down 5% compared to three months prior, and down 13% from levels one year ago (Figure 8).

Aluminum prices, which factor into the price of Galvalume, had also been on the rise in 2021 and into early 2022, reaching a record-high of $1.76 per pound on March 23. (Note that aluminum spot prices often have large swings and return to typical levels within a few days, as seen in the graphic below. We do not consider those surges in our overall high/low comparisons.) Aluminum prices rapidly declined through June, somewhat stabilizing in July and August, then eased further through September. On Sept. 27 aluminum prices reached a 17-month low of $1.05 per pound. The latest LME cash price has risen to $1.13 per pound as of Oct. 27. Aluminum prices are up 8% from one month prior, down 5% from late July, and down 7% from prices one year prior.

By Brett Linton, Brett@SteelMarketUpdate.com