Raw material market
Raw material prices tend to impact steel pricing. Steel scrap, iron ore, and coal are among the key raw materials used in steelmaking. Integrated steelmakers like U.S. Steel (X) and ArcelorMittal (MT) rely more on iron ore. Both of these companies have captive iron ore mines to cater to their iron ore needs. However, Nucor (NUE) and Steel Dynamics (STLD) mainly rely on steel scrap to produce steel.
Steel versus scrap
The above graph shows the movement in spot HRC (hot-rolled coil) prices plotted against benchmark-heavy melting scrap, according to data compiled by the Metal Bulletin. As you can see, spot HRC prices have been moving in tandem with scrap prices.
At the end of last month, we saw a small correction in steel scrap prices. It has been mirrored in steel prices as well. In our previous series, we noted that steel scrap prices look close to their near-term peak levels and we could see a correction. We noted that while seaborne iron ore prices have corrected from their April highs, US steel scrap prices were still rising.
Prices have risen in July
However, we‘ve seen a small uptick in steel scrap prices in July as can be seen in the graph above. Iron ore prices have also recovered from their June lows. It’s important to note that US scrap prices don’t follow seaborne iron ore prices in the short term. Over the medium to long term, changes in alternative raw material costs tend to impact the overall dynamics.
In the next part of the series, we’ll see what different steel companies (XME) have to say about the outlook for steel scrap prices.