Prices for five of the seven steelmaking raw materials tracked in this SMU analysis decreased over the last 30 days, further declining from the record levels seen in March and April. Through the latest data available as of August 31, pig iron prices decreased 38% in the last month, busheling scrap prices fell 14%, aluminum prices declined 4%, shredded scrap prices decreased 3%, and iron ore prices eased 2%.
At that same time, coking coal prices rebounded by 23% and zinc prices increased by 6%. Compared to levels three months prior, all raw material prices have declined, with multiple products down by 25% or more.
Table 1 summarizes the price changes of the seven materials considered in this analysis. It reports the percentage change from one month prior, three months prior, and one year prior for each product.
After rising to record-high levels last summer, the Chinese import price of 62% Fe content iron ore fines receded to pre-covid levels by the end of 2021. Prices increased from late 2021 through April of this year but have steadily declined since. Figure 1 shows the price of 62% Fe delivered North China at $101 per dry metric ton as of Aug. 31. Iron ore prices have decreased 2% in the last 30 days, down 25% compared to three months prior, and 34% less than prices one year ago.
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 dry metric ton. Prices quickly declined in the following months, falling to a 13-month low of $193 per ton in early August. The latest price as of Aug. 31 is $274 per ton, up 42% from the early August low, but down 59% from the March peak (Figure 2). Prices are down 43% compared to three months prior, but up 12% from prices one year ago. For comparison, the average coking coal price between 2017-2020 was $172 per ton.
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 metric ton.
Prices have eased each month since, with August levels down 38% from July to $465 per metric ton. Prices are down 51% compared to three months ago and down 18% from one year prior. Recall that pig iron prices had reached a multiyear low of $275 per metric ton in June 2020 (Figure 3).
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 four months. Busheling scrap prices fell $70 per ton to $435 per gross ton, while shredded scrap prices declined $15 per ton to $425 per ton. Recall that March and April saw record-high scrap prices, with busheling reaching $775 per ton and shred hitting $600 per ton. Prior to 2021, the highest point for scrap prices over the last decade was $510 per ton for busheling in 2011 and $473 per ton for shredded in 2012. SMU sources expect scrap prices to end this downward streak in September, remaining steady or possibly increasing.
Figure 5 shows the prices of mill raw materials over the past four years. Iron ore prices are 54% below the May 2021 peak of $221 per dry metric ton, while shredded scrap prices are down 11% year over year.
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, and a lower ratio favors the minimill/EAF producers.
At the current 4.23 ratio shown below, integrated producers currently hold the cost advantage and have mostly held this position 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 $340 per gross ton (44%) from the April peak and is now in line with levels seen in late 2020. As of Tuesday, Aug. 30, the SMU hot rolled price average increased $15 per ton week-over-week to $785 per ton. This is a decrease of $55 per ton (7%) compared to one month ago, and down $695 per ton (47%) from the April 2022 peak.
Zinc and Aluminum
Prices for zinc, used in galvanized and other coated products, have fluctuated dramatically in the last year. The LME cash price for zinc reached a record high of $2.05 per pound in May, then declined through July to reach a ten-month low of $1.35 per pound. Zinc prices have picked up again since then, rising as high as $1.68 in mid-August. The latest price as of August 31 is $1.62 per pound, up 6% compared to 30 days prior, down 9% compared to three months prior, but up 19% 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 began to decline in late March, reaching an eight-month low of $1.15 per pound in mid-July. Prices have remained relatively stable over the last two and a half months, hovering within a ten-cent range. The latest LME cash price is $1.17 as of August 31. This is down 4% from one month prior, down 14% from late May, and down 6% from prices one year prior.
By Brett Linton, Brett@SteelMarketUpdate.com
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