iron ore price

Steel prices remain at their lowest levels. Almost every industrial metal price rose in April as a weaker dollar gave a boost to commodity markets. However, steel prices remained quiet, hanging at record lows.

The monthly raw steels MMI® registered a value of 60 in May, on par with April's value.

Raw Materials Undercutting Scrap

Scrap prices are at their lowest levels and we don't really see anything that could give prices significant momentum on the upside, at least until a bigger supply response is seen.

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Unless we start seeing the dollar depreciate against other currencies, European scrap exports will keep gaining market share, leaving a supply excess for US steelmakers.

Cheaper to Produce

Moreover, although prices seem low, it's still cheaper to make steel still using iron ore than scrap. Pig iron or billet could substitute some scrap as primary raw material in which case, US exporters would sell more in the domestic market, causing US scrap prices to keep falling lower.

Meanwhile, steel imports keep arriving. Since US prices are no longer inflated compared to the rest of the world ,we would imagine steel imports to start slowing down through the remainder of the year. However, Chinese exports could actually increase due to the recent removal of export tariffs.

Either way, steel demand remains weak, particularly in oil and gas tubular markets while the market remains oversupplied. It doesn't seem likely that steel prices will rise significantly higher this year.

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Outlays for US construction projects fell 0.6% in March to a seasonally adjusted annual rate of $967 billion, the US Commerce Department said last week. Commerce also revised February’s result to show almost no change.

Why Manufacturers Need to Ditch Purchase Price Variance

Despite the lower spending, the monthly Construction MMI® registered a value of 74 in May, on par with April's value. Flat is, apparently, the new up until construction starts and spending pick up some steam. The low prices have not yet incentivized developers enough, it would seem, to sign off on new projects or increase purchasing for anything but stockpiling, as credit is still hard to obtain and consumer demand for commercial and residential space remain tepid.

Energy Loans Called In

In fact, banks in the US are cutting credit lines to energy companies and forcing the firms to cough up more collateral to guard against fallout from the fall in oil prices.

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The US International Trade Commission upheld tariffs against both rebar and, more recently, oil country tubular goods (OCTG) from China, but the flood of imports has already done its damage when it comes to both traditional construction and the steel pipes used for oil and gas drilling. Supply is high and demand is simply not high enough to push prices upward.

It's a testament to the resilience of the US construction market that our MMI was even able to hold steady this month. For complete prices, read the complete story – log in or sign up for MetalMiner membership!

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Today in MetalCrawler, the sleepy iron ore market was jolted to life. Is it a shift from the bearish trends we’ve seen lately? Only time will tell.

BHP Dials Back Mining Expansion

Iron ore advanced after BHP Billiton Ltd. curbed expansion plans and supplies from higher-cost mines dropped, easing concern that global output will outpace demand and feed a global glut. Miners’ shares jumped.

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Ore with 62% content at Qingdao, China, rose 5.5% to $57.81 a metric ton early today, its highest since March 16. Benchmark iron ore is still 60% below the peak of $144.18 reached in August 2013. Visit our MetalMiner Indx for the latest prices.

Exports Fall for the Quarter

The Sydney Morning Herald’s Peter Ker writes that the week’s iron ore moves could have a major impact on markets if other producers follow BHP’s lead and constrain supply. Across Rio Tinto Group, Vale SA, Fortescue Metals Group, Arrium Limited, Mt. Gibson Iron and Grange Resources, exports were more than 19 million mt lower this quarter than in the December quarter, raising questions about why the iron ore price has fallen 28% during a period of supply weakness.

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The American Institute of Architects‘ Architecture Billings Index came in positive, again, in March, but its relatively low increase again reflected the weak recovery in both design and construction. The March ABI score was 51.7, up from a mark of 50.4 in February.

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“Business conditions at architecture firms generally are quite healthy across the country. However, billings at firms in the Northeast were set back with the severe weather conditions, and this weakness is apparent in the March figures,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “The multi-family residential market has seen its first occurrence of back-to-back negative months for the first time since 2011, while the institutional and commercial sectors are both on solid footing.”

Multi-Family Weakness

We have reported on the general weakness in multi-family residential and its effect on prices of construction materials such as structural steel and copper for much of the first quarter of 2015.

AIA prepared a video featuring Baker, recorded in a swanky Architect Magazine studio overlooking our nation’s capital, describing the macroeconomic issues facing the construction market, which include the strong dollar and the continuing shortage of skilled construction labor, in Q2 and the rest of the year.

Steel held its price for the first time in seven months, breaking a string of losses that most market observers expected would continue.

The monthly Raw Steels MMI® registered a value of 60 in April, on par with March's value.

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Continuing low prices for iron ore and a generally weak scrap market are causing a deflationary spiral for most grades of steel.

Low Prices, Lower Demand

Steel prices fell sharply during the first quarter and our steel index got a much-needed breather.

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The once-robust global construction market fell further this month as, here in the US, price-cutting by OPEC has caused large oil and gas projects to fall below their breakeven payback points.

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Heavy energy construction as fallen and the fragile single-family home market is not strong enough to pick up the slack.
The monthly Construction MMI® registered a value of 74 in April, a decrease of 1.3% from 75 in March.

Oil is Now Too Cheap to Pull Out of the Ground

The effects of oil and gas drilling suspensions have been felt by producers of steel pipe used in the field (oil country tubular goods) and that lack of production showed up the past two months in the form of canceled or postponed exploration projects.

Without the robust growth in civil drilling projects here in the US, construction spending fell in February as the numbers were also pulled down by a drop in single-family home building. Private spending on construction of single-family homes declined 1.4%.

The pullback in exploration is, however, not just a US problem. A key “supply-based” response to low oil prices has been a sharp decline in rig counts and reductions in 2015 capital expenditure budgets from major oil companies, including ConocoPhillips, Chevron, Hess, and BP. These multinationals spend much of their exploration budgets 0n projects in the US but Brazil and other energy-rich nations could see projects canceled as well

The “power” category of the US Census Bureau — which includes oil and gas facilities — is down by 17.2% year-on-year and 4.5% for the month. That sector of the construction industry is simply going to have to wait until energy prices rise again.

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After its first negative score in 10 months, the Architecture Billings Index (ABI) showed a small increase in design activity in February, and has been positive 10 out of the past 12 months.

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As an economic indicator of construction activity, the ABI reflects a 9-to-12-month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the February ABI score was 50.4, up slightly from a mark of 49.9 in January. This score reflects a minor increase in design services (any score above 50 indicates an increase in billings).

Questions about the uneven recovery in both residential and commercial construction are keeping the US architectural design market from growing more than the slight increases and small decrease of recent months.

Health of Major US Construction Sectors

“The health of the institutional market has been the key factor for positive business conditions for the design and construction industry in recent months, and it is encouraging to see that sector remain on solid footing,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “However, we’re seeing some slowing in the other major construction sectors. Design billings for residential projects had its first negative month in more than three years, and commercial design billings have seen only modest growth in recent years.”

A sector that's not covered by the ABI, infrastructure spending, is experiencing growing pains, as well. Many economists are projecting that the Federal Reserve will raise interest rates this summer, which could increase borrowing costs and potentially affect infrastructure construction, according to US News and World Report. Several economists say that infrastructure spending is badly needed and that Congress should look at alternative ways to fund construction, including raising the gas tax and increasing public-private partnerships.

Residential and commercial construction could see a lack of available credit, as well, if the Fed signals that interest rates could rise sooner rather than later.

Key February ABI Highlights

  • Regional averages: South (52.5), Midwest (50.2), Northeast (48.0), West (46.7)
  • Sector index breakdown: institutional (52.2), commercial / industrial (51.4), multifamily residential (48.9), mixed practice (45.3)
  • Design contracts index: 50.0

For exact week-over-week price trends in metals used in the construction industry, click below!

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U.S. Steel on Thursday announced more layoffs as it continues to fight lower-priced, surging imports and declining demand in the energy sector, saying it will temporarily idle one of its iron-ore operations in Minnesota, affecting 412 workers.

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The idling of the plant in Keewatin, Minn., which ships to U.S. Steel mills, will take place on May 13 and affects six million tons of iron-ore production capacity, or 27% of U.S. Steel’s overall iron-ore output last year. U.S. Steel said the move is temporary in a statement.

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The steel prices plummet continued this month in the the monthly Raw Steels MMI® and registered a value of 60, a decrease of 11.8% from 68 in February.

In February steel prices fell sharply, not only for semifinished products but scrap prices hit the wall as well. Steel billet fell more than 50% this month for both the spot and 3-month contracts on the London Metal Exchange.

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In January, the global scrap to billet price spread fell to less than $100 a metric ton. This level was unsustainable since melting scrap to make billet is already more expensive than that. For that spread to look more stable scrap prices needed to drop and boy did they ever.

Meanwhile, steel products can't catch a break. According to recent figures released by the American Iron and Steel Institute (AISI), US steel imports rose 33% in January compared with the year before, reaching 3.85 million tons, compared with 2.9 million tons a year earlier. As a result, US producers keep cutting prices to compete with imports.
In February, the four steel products we track in our forecast reports (CRC,HRC,HDG and plate) dove to record lows. The lowest prices seen since 2009.

The flood of cheap Chinese exports that domestic industries in the US, Europe and India have long blamed for lowering domestic prices received real undercutting competition in the last two months from Ruble-deflated Russia. India first sounded the alarm on the cheap Russian imports, then US steelmakers noted how much Severstal and others were undercutting HRC prices here and then, finally, the Russian Federation, itself, considered export taxes on its own companies who are reaping a windfall of exports paid in dollars against production costs paid in rubles.

With economic sanctions battering an already shaky economy it's unlikely that Russian steelmakers' costs will go up unless its Moscow taking its share from them. This low export price situation will likely continue.

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Russian domestic steel prices jumped as domestic producers there continue to seek parity with expanding exports. The government is considering imposing a levy on shipments overseas.

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The price of domestic rebar rose 17% last month, the largest increase among steel products, according to data from Metall Expert Consulting, a research firm with offices in Ukraine and Moscow. Hot-rolled coil climbed as much as 15% in the Russian Federation this month, it said.

“There is a stable demand for Russian steel on the external markets, thus domestic prices are seeking to match export price,” Nikolay Filkevich, project head at Metall Expert, which analyzes the domestic steel market, told Bloomberg News.
Producers are trying to close a price gap that by January had widened to about 4,000 rubles ($58.4) per ton of flat steel after the ruble weakened 48 percent in the past 12 months, according to Metall Expert.

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