Iron ore prices
We already saw that steel prices have fallen to their lowest level since mid-2009. Steel prices in the United States are down ~30% since the start of last year. But the rout in iron ore prices has been even more severe.
Iron ore prices fell by more than half over this same period. Iron ore is the primary raw material for steel producers that use traditional blast furnaces. ArcelorMittal (MT) and U.S. Steel Corporation (X) produce most of their steel through blast furnaces.
Movement in iron ore prices
The above chart shows the movement in iron ore prices. Iron ore prices have corrected more than ~12% so far in 2015. Almost all iron ore that’s mined is used for making steel. The weakness in iron ore prices is a reflection of demand slowdown in the steel industry.
Integrated steel producers such ase ArcelorMittal and U.S. Steel have iron ore mining operations as well. These companies are negatively impacted by the fall in iron ore prices. The profitability of their mining operations goes down if iron ore prices drop.
Steel scrap is another major raw material for steel companies. In the next part, we’ll see how steel scrap prices have played out so far in 2015.