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Strengthening Scrap Prices Lend Support to US Steel Prices

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Strengthening scrap prices

Raw material prices tend to impact steel pricing. Steel scrap, iron ore, and coal are among the key raw materials used in steelmaking.

Seaborne iron ore prices have been in a freefall since 2011, falling below $40 per metric ton last year. However, seaborne iron ore prices have recovered somewhat this month and are now quoted in the ballpark of $55 per metric ton. Higher iron ore prices have been accompanied by a spike in Chinese steel prices.

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US steel prices

For US (VTI) steel producers like Steel Dynamics (STLD) and Nucor (NUE), steel scrap pricing is a bigger driver than seaborne iron ore 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 the strength in steel scrap prices.

Steel price increases

Strengthening raw material prices and rising Chinese steel prices would help US steelmakers justify their price increases. Several steel companies, including 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.

While the flat rolled market has been gaining strength, long product pricing has been sagging. We’ll explore this trend in the next part of this series.

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