uploads///part  iron ore

Will US Steel Benefit from Higher Iron Ore Prices?


Dec. 5 2017, Updated 7:31 a.m. ET

Iron ore prices

Iron ore is the key raw material for companies that produce steel in blast furnaces. Many steel companies, like ArcelorMittal (MT) and U.S. Steel Corporation (X), have integrated operations where they mine iron ore to feed their steel mills. It’s crucial for steel investors to follow iron ore prices as the movement in iron ore prices tends to impact global steel prices. In this part of this series, we’ll look at the recent trend in seaborne iron ore prices (CLF).

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Prices have been strong this month

Looking at the benchmark iron ore contract, we see that prices hit a peak of $95 per ton earlier this year only to fall to lows of $53 per ton in July. Prices were strong in August, but September was a weak month for iron ore amid concerns over Chinese demand in winter. China plans to curtail its polluting steel units in winter to curb the country’s rising pollution. Some market observers fear that Chinese iron ore demand could also fall after the country curtails its polluting steel mills.

Chinese steel prices

Meanwhile, iron ore prices have been strong this month, as you can see in the graph above. Stable Chinese steel prices support seaborne iron ore prices. Since China is the world’s largest iron ore importer, accounting for almost two-thirds of seaborne iron ore demand, the Chinese steel pricing environment tends to impact iron ore prices. Plus, we’ve seen a widening of spreads between high-quality and low-quality iron ore prices on China’s pollution control measures.

Higher iron ore prices could support global steel prices (NUE)(AKS). Companies like U.S. Steel that produce much of their iron ore needs from captive mines tend to outperform when iron ore and steel prices are high.

In the next and final part of this series, we’ll see what could drive steel companies’ 2018 unit production costs.


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