Steel raw material market
Steel production is raw material–intensive in nature. Iron ore, steel scrap, and coking coal are the key raw materials that go into steel production. In this article, we’ll look at iron ore and coking coal prices.
Iron ore has fallen in September
The benchmark iron ore contract for delivery to China is currently trading around $57 per metric ton. Iron ore has lost ~4% this month, while it is up more than 30% since the beginning of the year. As discussed in the previous part, Chinese steel prices have also fallen in September.
The above graph shows the movement in Chinese HRC (hot rolled coil) prices plotted against benchmark iron ore prices. As you can see, the two have generally been moving in tandem with each other. This isn’t surprising because Chinese steel mills rely heavily on seaborne iron ore. The country accounts for two-thirds of seaborne iron ore demand. China is the biggest market for leading iron ore names (GNR) like BHP Billiton (BHP), Rio Tinto (RIO), and Vale (VALE).
Spot coking coal prices have gained almost 165% since the beginning of the year, including a 50% gain in September alone. However, coking coal prices have shown some signs of stabilization over the last week.
Notably, higher iron ore and coking coal prices might put a floor under Chinese steel prices and prevent them from falling. You can read How’s the Raw Material Market Impacting Steel Prices in 2016? to learn more about the key drivers of steelmaking raw materials.
Meanwhile, for US steel producers like Steel Dynamics (STLD), steel scrap is the key driver. In the next article, we’ll look at the recent movement in steel scrap prices.