Raw Materials Prices: Iron Ore, Coking Coal, Pig Iron, Scrap, Zinc

Iron Ore

The Chinese import price of 62% Fe content iron ore fines has been on the rise since May 2020. Figure 1 shows the price of 62% Fe delivered North China at $166.5/dmt as of Feb. 17, down slightly from January figures, but up significantly over recent years. (Editor’s note: Subsequent to this writing, SMU’s sister company CRU reported an increase in Chinese iron ore prices, up to $174.0 /dmt, due to the Chinese New Year holidays ending and optimism regarding steel demand.)

Coking Coal

The price of premium low volatile coking coal FOB east coast of Australia declined throughout much of 2020, reaching a low of $98.5 in late-November. Prices bounced upwards since then, reaching a 10-month high in early February and currently at $145.0 dollars per dry metric ton as of Feb. 17 (Figure 2). More recent CRU data shows prices declined this week to around $137/dmt, with prices expected to remain stable over the week ahead. Recent coking coal prices remain low compared to years prior. 

Pig Iron

Most of the pig iron imported to the U.S. currently comes from Russia, Ukraine and Brazil. This report summarizes prices out of Brazil and averages the FOB value from the north and south ports. The latest data through February shows an average pig iron price of $490 per metric ton, down 10% over the previous month, but up 34.2% from three months prior and up over 50% from levels one year ago. Pig iron prices had declined since mid-2018, but increased each month from June 2020 through January 2021 (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, both priced in dollars per gross ton in the Great Lakes region. February scrap prices were flat to down 16% from January, but up between 46-70% compared to this time last year. Scrap prices are expected to level off or decline somewhat in March. 

Figure 5 shows the recent spread between the price of iron ore, at $166.5 per dry metric ton, and shredded scrap at $410 per gross ton. 

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 2.46 ratio shown below, minimills continue to hold a more competitive cost advantage. This ratio hit an all-time low of 1.86 in August 2020 (within SMU’s 12-year limited data history).

Figure 7 shows how the price of hot rolled steel generally tracks with the price of shredded scrap. Shred fell by approximately $80 from January to February, while hot rolled prices have risen $200 since the start of the year; the SMU hot rolled average was $1,010 in the first week of January and reached $1,210 as of Feb. 23.

Zinc and Aluminum

Zinc, used to make galvanized and other products, has steadily risen since March 2020, reaching a 21-month high this week (Figure 8). The LME cash price per pound of zinc as of Feb. 22 was $1.3073, up 57 percent from the March 2020 low of $0.8236. The price of zinc factors into the coating extras charged by the mills for galvanized products. Many mills revised their coating extras upwards in December to reflect the higher zinc price. Aluminum prices, which factor into the price of Galvalume, have been trending upwards over the last few months and are at a multi-year high. Note that aluminum prices often have large swings and return to typical levels within a few days, as seen in the graphic below. The LME cash price per pound of aluminum was $0.9859 as of Feb. 22, and has been hovering around $0.90 since late-November 2020.

By Brett Linton, Brett@SteelMarketUpdate.com