04/02/2015 – Ferrous scrap selloff after prices hit triple iron ore’s

 

The closely watched ratio of ferrous scrap pricing to iron ore, as a gauge of raw material selection in crude steel production, shifted downward after scrap sold off as it hit triple the price of iron ore in January.

Prices of benchmark grade scrap for delivery in Turkey fell to $268/mt on Monday from $300/mt on January 28, down almost 11% in just three trading sessions.

Iron ore, meanwhile, has maintained a weak spell to new lows of $61.25/dry mt/CFR China for Platts IODEX, but down only 2.8% over the same period.

That has left scrap prices over iron ore, both adjusted for quality, at 2.95:1, down from a January peak of over 3.14:1 at mid-month.

This still favors iron ore use based on price, given the ratio was closer to 2:1 a year ago, according to procurement executives.

Iron ore may well remain preferable for some time to come for integrated mills able to tailor the quantity of scrap added to hot metal, or pig iron, used in making crude steel.

“Scrap still has some way to go, a correction is long overdue,” a mill source said Tuesday.

“We are maximizing using risings generated internally but pushing hard to reduce the bought-in scrap component.”

Another large steel producer said it has been concentrating on iron ore and producing more hot metal to reduce scrap content in steelmaking.

That has presented some challenges to procuring raw materials to maintain sinter quality and has kept pellet usage high.

Any extra cost of making hot metal seems to have been outweighed by the cost savings by reducing scrap.

The ratio of scrap prices in Turkey to iron ore has held above 2.9:1 since December, boosting costs for EAF-based rebar producers.

Re-rollers have been able to procure cheaper billets rolled by blast furnace mills in the Commonwealth of Independent States and elsewhere, and widespread rebar export offers from China competed with Turkish producers, cutting demand for scrap in the region.

In the US, scrap prices have also fallen sharply.

At the end of January, Midwest shredded scrap prices hit a five year-low, seen below $300/lt for the first time since December 2009, Cowen investment bank analysts said in a note last week.

“Scrap prices are now moving more in line with the price of other steelmaking inputs. We see the drop in scrap prices most beneficial for mini-mills, which traditionally utilize 75% scrap in their EAFs,” Cowen said.

US iron ore pricing is understood to be mainly linked to bilateral annual and multi-year pricing rather than fully exposed to international spot seaborne prices, according to Cliffs Natural Resources, the largest US supplier.

Cliffs earlier said there were no US iron ore contracts re-setting any time in 2015 or 2016.

The Cleveland-based company on Monday provided an illustration of sensitivity to its North American iron ore pellet sales prices in changes to Platts IODEX iron ore benchmark, with outlook for prices at $75-90/lt mine based on IODEX ranging between $50-80/dry mt CFR China.

Platts analysis of scrap and iron ore pricing uses the Turkey HMS I:II (80:20) adjusted for quality by a factor of 0.92 and Platts 62% iron ore fines CFR China adjusted by a factor of 0.62 to 100% iron content.

 

Source – Platts.com