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 $177.0/dmt as of April 21, up nearly 10% over one month prior and up 105% from May 2020.

Coking Coal

The price of premium low volatile coking coal FOB east coast of Australia declined throughout much of 2020, briefly rising to a 10-month high in early 2021. Prices have since declined, currently at $113.2 dollars per dry metric ton as of April 21 (Figure 2). 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 April shows an average pig iron price of $539 per metric ton. Pig iron prices have remained historically high for the past four months, up 78% 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. April scrap prices were down 3-4% from March, but remain strong, nearly two times as high as April 2020 prices.

Figure 5 shows the recent spread between the price of iron ore, at $177 per dry metric ton, and shredded scrap at $430 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 2.43 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 $20 from March to April, down $58 from January’s peak. Hot rolled prices continue to rise each week, up $95 in the past month and up $400 since the start of the year; the SMU hot rolled average reached $1,410 per ton as of April 20.

Zinc and Aluminum

Zinc, used to make galvanized and other products, had steadily risen from April through December 2020, hovering around $1.20-$1.30 since then (Figure 8). The LME cash price per pound of zinc as of April 21 was $1.2746, up 55 percent from the March 23, 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 since April 2020 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 $1.0697 as of April 21, up 19% over three months ago and up 63% over one year prior.

By Brett Linton, Brett@SteelMarketUpdate.com