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

Iron Ore

The Chinese import price of 62% Fe content iron ore fines surged upwards for over a year, but began to slip in July/August and has tumbled since. Figure 1 shows the price of 62% Fe delivered North China at $90.8 per dry metric ton as of Nov. 17. Iron ore prices have fallen 27% in the last 30 days, down 44% compared to three months ago, and down 26% from the price this time last year.

Coking Coal

The price of premium low volatile coking coal FOB east coast of Australia remains elevated, having reached a multi-year high of $405.3/dmt in late-September, now at $387.5 as of Nov. 17 (Figure 2). Prices have declined 4% in the last 30 days, yet remain 75% above levels three months ago and up a whopping 279% from prices one year ago. Prior to the previous two months, the last time coking coal prices were this high was over 13 years ago, in July 2008.

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 16% from the June/July peak, now averaging $535 per metric ton in November. Although down over the summer months, pig iron prices have remained historically high for nearly a year and are up 47% from levels this time last year. Recall that pig iron prices had reached a multi-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. November scrap prices remain near historical highs, up 83-86% compared to prices one year ago. November shredded scrap prices rose 16% over October to $530 per gross ton, now the highest level seen in our 15-year price history. Busheling scrap prices rose 5% over October to $605 per gross 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 February 2012.

Figure 5 shows the prices of mill raw materials over the past four years. Iron ore prices are down 59% from the mid-May 2020 peak of $221 per dry metric ton, while shredded scrap prices reached a new record-high this month.

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 5.84 ratio shown below, the cost advantage formerly held by minimills has faded, having surpassed the black four-year average ratio line back in late-August. This is the highest ratio seen since July 2018 when it was 5.88. 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 has risen $30 per gross ton over the past month, up $93 from the beginning of the year, and up $280 from one year ago. The SMU hot rolled price average declined last week for the sixth consecutive week, with the Nov. 16 average down $25 week over week to $1,830 per ton; this is down $80 from the prior month, up $820 since the start of the year, and up $1,100 over one year ago.

Zinc and Aluminum

Zinc, used to make galvanized and other products, reached a multi-year high of $1.7369 per pound on Oct. 15 (Figure 8). The LME cash price for zinc has since declined 16%, reaching $1.4509 per pound as of Nov. 18, up 27% from three months prior, and up 18% 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 also reached a record-high of $1.4399 per pound on Oct. 15, the highest daily price seen in our 10-year history (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). Like zinc, the latest LME cash price of aluminum has declined 17% since it’s peak, now at $1.1968 per pound as of Nov. 18, in line with the price three months ago and up 34% from one year prior.

By Brett Linton, Brett@SteelMarketUpdate.com