Raw Materials Prices Rise Higher through April

Iron Ore

After rising to record levels last summer, the Chinese import price of 62% Fe content iron ore fines declined through November, reaching an 18-month low. Prices have since risen and continue to trek upward; Figure 1 shows the price of 62% Fe delivered North China at $153 per dry metric ton as of April 20, levels last seen in August 2021. Iron ore prices have increased 3% in the last 30 days, up 22% compared to three months ago, yet down 14% from the price this time last year.

Coking Coal

The price of premium hard coking coal FOB east coast of Australia surged in March to a record high of $660 per dry metric ton, with the latest figure down 23% from that high to $506 per ton (Figure 2). Prices have increased 26% compared to three months prior and are up 347% from prices one year ago. In 2021, coking coal prices reached a record-high of $405 per ton in October/November. Prior to that, the average coking coal price in 2019-2020 was $151 per ton, and the previous record for coking coal prices was $400 per ton in July 2008.

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. And prices increased another 18% this month. The average pig iron price for April is now $975 per metric ton, a new record high. Recall that pig iron prices had reached a multi-year low of $275 per metric ton in May 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, versus the 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 remained at or exceeded record levels in April; shredded scrap prices were flat over March at $600 per gross ton, while busheling scrap prices increased 11% to $775 per ton. Prior to 2021, the previous record for scrap prices over the last decade was $510 per ton for busheling in December 2011 and $473 per ton for shredded in March 2012. Scrap expert sources expect prices to remain steady or ease next month. 

Figure 5 shows the prices of mill raw materials over the past four years. Iron ore prices are 31% below the May 2021 peak of $221 per dry metric ton, while shredded scrap prices have risen 40% in that same time.

To compare the two, Steel Market Update divides the shredded scrap price by the iron ore price to calculate a ratio (Figure 6). A high ratio favors the integrated/BF producers, a lower ratio favors the minimill/EAF producers. At the current 3.93 ratio shown below, the cost advantage briefly held by integrated producers in late 2021 has returned. Five months ago we saw a ratio of 5.84, the highest seen since mid-2018. The scrap to iron ore ratio reached a record low of 1.86 in August 2020 (within SMU’s limited 12-year data history).

Figure 7 shows how the price of hot rolled steel generally tracks with the price of busheling scrap. Bush rose $75 per gross ton over the past month, up $245 per ton from February, and up $215 per ton from one year ago. The SMU hot rolled price average increased $30 per ton week over week to $1,480 per ton. This is an increase of $80 per ton compared to four weeks prior, up $480 per ton from the early-March low, and up $70 per ton from levels this time last year.

Zinc and Aluminum

Zinc, used to make galvanized and other products, has rapidly increased in price since early March. The LME cash price was $2.04 per pound as of April 21, up 22% from three months prior and up 60% from the same time last year (Figure 8). The LME cash price for zinc surpassed $2 per pound on April 13, yet another historic record.

Aluminum prices, which factor into the price of Galvalume, have slightly eased from the high levels seen last month. Aluminum prices reached a record high of $1.76 per pound on March 23, the highest seen in our 10-year history (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). The latest LME cash price of aluminum has declined to $1.59 per pound as of April 21, down 10% from the March record, yet up 16% compared to three months ago and up 49% from one year prior.

By Brett Linton, Brett@SteelMarketUpdate.com