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The most important number in the iron and steel industry?
Is this the most important number in the iron and steel industry?
Take a look at the accompanying graph. This is probably THE most important number in the world iron and steel industry. It is the price of iron ore fines for use as sinter feed imported on a spot market basis into China. Almost all of this volume comes from India. For this particular graph, the ore is 63.5% Fe and the price is US dollars per dry ton as delivered to a “main” port in Eastern China. The data shown is as collected by Metal Bulletin.
Prior to January, 2004 few people cared about this number. Then as you can see, Metal Bulletin began collecting it on a monthly basis. By mid-February, 2008 it had become so important that they began collecting it every week. Then, by March 8, 2010, it was so important that it has since been collected each and every working day. Along with it, the prices of various other grades of sinter fines are also collected.
Why is it so important? Why spend so many man-hours pursuing one number?
We are in an era of “cost push” pricing in the steel industry. Raw materials costs for steelmaking are so high that they have forced the price of steel far higher than they were a few years ago. After all, one cannot sell a commodity for less than it costs to manufacture; at least not for very long. The major costs of making steel are iron ore, coking coal, and scrap steel. The biggest is iron ore. So iron ore costs are watched very closely.
But, again, why are we watching the price of sinter feed to China so closely?
At the end of 2009 the long used “benchmark” price system for iron ore collapsed and a new pricing method took its place. Each quarter a 3-month contract price is set based upon the spot price of ore during a three month prior period that is offset by one month. That is, for the current quarter, April through June, the quarterly contract price is set according to the spot prices that existed for December, January and February.
And the spot price that is used for this calculation is the price of sinter fines delivered to China. Thus, for the past year the price of these fines has been the primary driver for pricing in the world’s trillion dollar per year steel market!
So, how does this affect the metallics market; scrap steel, pig iron and DRI/HBI? In this case, they follow. As the cost of steelmaking with iron ore increased there was escalated demand for less expensive steel made from scrap. Scrap is not only used to feed electric arc furnaces, but it is also used as coolant in oxygen steelmaking. With rising steel costs, more metallics were needed in both applications. As more demand for metallics arose, the price of metallics increased. As long as the cost of metallics based steelmaking is less than the cost of ore based steelmaking the demand for metallics continues to increase and thus the price of them also increases.
Currently, we have a situation where the price of metallics has been quite high for a number of years. As a result the demand has been large and the “pool” of obsolete scrap has been drawn down by this demand. Thus, the price of scrap and other metallics is likely to remain high for quite a few years, until the pool can be refilled.
posted by Robert Hunter
Friday, April 15, 2011 at 10:22 AM
Friday, April 15, 2011 at 10:22 AM
Is this the most important number in the iron and steel industry?
Take a look at the accompanying graph. This is probably THE most important number in the world iron and steel industry. It is the price of iron ore fines for use as sinter feed imported on a spot market basis into China. Almost all of this volume comes from India. For this particular graph, the ore is 63.5% Fe and the price is US dollars per dry ton as delivered to a “main” port in Eastern China. The data shown is as collected by Metal Bulletin.
Prior to January, 2004 few people cared about this number. Then as you can see, Metal Bulletin began collecting it on a monthly basis. By mid-February, 2008 it had become so important that they began collecting it every week. Then, by March 8, 2010, it was so important that it has since been collected each and every working day. Along with it, the prices of various other grades of sinter fines are also collected.
Why is it so important? Why spend so many man-hours pursuing one number?
We are in an era of “cost push” pricing in the steel industry. Raw materials costs for steelmaking are so high that they have forced the price of steel far higher than they were a few years ago. After all, one cannot sell a commodity for less than it costs to manufacture; at least not for very long. The major costs of making steel are iron ore, coking coal, and scrap steel. The biggest is iron ore. So iron ore costs are watched very closely.
But, again, why are we watching the price of sinter feed to China so closely?
At the end of 2009 the long used “benchmark” price system for iron ore collapsed and a new pricing method took its place. Each quarter a 3-month contract price is set based upon the spot price of ore during a three month prior period that is offset by one month. That is, for the current quarter, April through June, the quarterly contract price is set according to the spot prices that existed for December, January and February.
And the spot price that is used for this calculation is the price of sinter fines delivered to China. Thus, for the past year the price of these fines has been the primary driver for pricing in the world’s trillion dollar per year steel market!
So, how does this affect the metallics market; scrap steel, pig iron and DRI/HBI? In this case, they follow. As the cost of steelmaking with iron ore increased there was escalated demand for less expensive steel made from scrap. Scrap is not only used to feed electric arc furnaces, but it is also used as coolant in oxygen steelmaking. With rising steel costs, more metallics were needed in both applications. As more demand for metallics arose, the price of metallics increased. As long as the cost of metallics based steelmaking is less than the cost of ore based steelmaking the demand for metallics continues to increase and thus the price of them also increases.
Currently, we have a situation where the price of metallics has been quite high for a number of years. As a result the demand has been large and the “pool” of obsolete scrap has been drawn down by this demand. Thus, the price of scrap and other metallics is likely to remain high for quite a few years, until the pool can be refilled.
