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

Iron Ore

The Chinese import price of 62% Fe content iron ore fines had been soaring upward for over a year, but began to slip in early-August. Figure 1 shows the price of 62% Fe delivered North China at $128.3/dmt as of Sept. 15, the lowest price seen since November 2020. Iron ore prices have fallen 21% in the last 30 days, down 40% compared to three months ago and almost equal to the price this time last year.

A CRU report from Sept. 21 notes iron ore prices have now fallen further to $93/dmt. They reported “Chinese demand remains weak and seasonal improvements in construction activity have thus far not materialized in any significant improvement in market conditions for steelmakers. At the same time, iron ore supply has been strong in the past week with global exports coming in at the highest level since the beginning of January.”

Coking Coal

The price of premium low volatile coking coal FOB east coast of Australia has surged over the last four months, reaching $330.7 per dry metric ton as of Sept. 15 (Figure 2). Prices are up 49% in the last 30 days, up 95% in the past three months, and up a whopping 193% over levels one year prior. The last time coking coal prices were this high was more than 10 years ago, going back to early-2011.

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 shows pig iron prices have declined 20% from the June/July peak, now averaging $510 per metric ton in September. Although down over the summer months, pig iron prices have remained historically high for the past 10 months and are up 43% from levels one year ago. Recall that pig iron prices had reached a muli-year low of $275 per metric ton in May 2020, with prices increasing each month thereafter 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 scrap, priced in dollars per gross ton in the Great Lakes region. September scrap prices declined 3-12% from August yet remain high historically, up 98-131% compared to prices one year ago. 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 February 2012.

Figure 5 shows the prices of mill raw materials over the past four years. The price of iron ore has declined 42% from the mid-May 2020 peak of $221 per dry metric ton. Shredded scrap eased 3% from August to September, down 7% from the June/July peak.

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 3.62 ratio shown below, the cost advantage formerly held by minimills is lessening, surpassing the four-year average ratio line in black. This ratio reached it’s lowest point 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 busheling scrap. Bush was down 12% from August to September, up $78 from the beginning of the year and up $280 from one year ago. The SMU hot rolled price average declined last week for the first time in more than a year, with the latest average down $5 to $1,950 per ton as of Sept. 14; this is up $35 per ton over the prior month, up $940 per ton since the start of the year, and up $1,370 per ton over one year ago.

Zinc and Aluminum

Zinc, used to make galvanized and other products, has been on the rise since March 2020 and reached a multi-year high on Sept. 10 (Figure 8). The LME cash price for zinc as of Sept. 17 is $1.3903 per pound, up 6% from three months prior, and up 23% from the same time last year. The price of zinc factors into the coating extras charged by the mills for galvanized products.

Aluminum prices, which factor into the price of Galvalume, have been trending upwards since May 2020. Aluminum prices reached a record-high on Sept. 10, climbing to $1.3190 per pound, the highest daily price seen in over 10 years (note that aluminum 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 is $1.2994 per pound as of Sept. 17, up 20% over three months ago and up 64% from one year prior.

By Brett Linton, Brett@SteelMarketUpdate.com