Iron Ore Prices Continue To Slide, Reflecting A Weak Steel Market



Iron ore prices

Previously in this series, we saw how steel prices have corrected in 2015. Major steel producers in the United States have lowered steel prices this year. Nucor (NUE) has reduced rebar prices for its customers.

Let’s now see the latest trend in iron ore prices. Iron ore is the primary raw material for steelmakers using blast furnaces. ArcelorMittal (MT) uses blast furnaces for almost two-thirds of its steel production. U.S. Steel (X) produces almost all of its steel using blast furnaces.

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Iron ore prices slide

Iron ore prices corrected by almost half in 2014. They’ve continued their downward journey, falling ~5% this year. You can see this trend in the chart above. Almost all mined iron ore is used for steelmaking. The weakness in iron ore prices reflects a demand slowdown from steel production. The addition of fresh capacity by mining giants like Rio Tinto (RIO) and BHP Billiton (BHP) has only worsened the state of iron ore prices.

Impact on steel companies

Integrated steel companies like US Steel and ArcelorMittal haven’t been able to reap the benefits of lower iron ore prices. The profits of their mining operations go down when iron ore prices fall.

AK Steel (AKS) sources most of its iron ore from third parties. It posted higher profits in 4Q due to lower raw material costs. You can read more about AK Steel’s 4Q results in our series An Investors’ Guide To AK Steel’s Financial Performance. Currently, AK Steel forms 3.06% of the SPDR S&P Metals and Mining ETF (XME).

Steel companies like Nucor use steel scrap as their primary raw material. We’ll discuss the latest trends in steel scrap prices in our next part.


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