uploads/2016/03/scrap-china-steel-part-81.png

How Rising Steel Scrap Prices Support US Steel Prices

By

Updated

Steel scrap prices

Raw material prices tend to impact steel pricing also. Steel scrap, iron ore, and coal are among the key raw materials used in steelmaking. For US (VTI) steel producers like Steel Dynamics (STLD) and Nucor, steel scrap pricing is a bigger driver than seaborne iron ore prices.

How Rising Steel Scrap Prices Support US Steel Prices

The graph above shows the movement in spot hot rolled coil (or HRC) prices plotted against benchmark-heavy melting scrap, according to the data compiled by the Metal Bulletin. As you can see, spot HRC prices have been moving in tandem with scrap prices. Even the recent uptick in US steel prices has been accompanied by strength in steel scrap prices. Steel scrap prices have been rising as demand has been strong in the US as well as in Turkey, which is the largest scrap importer.

Article continues below advertisement

Iron ore prices

Chinese steel prices have risen sharply this month. This has been accompanied by a steep rise in seaborne iron ore prices as well. Strengthening raw material prices and rising Chinese steel prices would help US steelmakers justify their price increases. Several steel companies including Nucor (NUE), AK Steel (AKS), and ArcelorMittal (MT) have raised their spot offers recently.

Furthermore, the newfound strength in seaborne iron ore prices could also help US steel scrap pricing. Although US scrap prices don’t follow seaborne iron ore prices in the short term, over the medium term to long term, changes in alternate raw material costs tend to impact the overall dynamics.

In the next part of the series, we’ll explore the importance of higher Chinese steel prices for US steel companies.

Advertisement

More From Market Realist