2009 Iron Ore, Coking Coal and Steel Production Costs

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Ferrous Metals

One of the most fun aspects of our jobs involves pouring through Google Analytics to see what blog posts prove most popular at the moment and which posts prove their worth over time. In the last 30 days, the most read piece, our price predictions for gold, silver, platinum and palladium, surprised us a bit because it means our readership includes many outside the scope of industrial manufacturing, such as consultants, investment banks, research firms etc. If you are interested in receiving our soon-to-launch analysis of the precious metals markets in which we analyze global price trends, drop me a line at lreisman (at) aptiumglobal (dot) com.

But without a doubt, any of our pieces on steel price predictions, raw material price trends, steel hedging or global steel prices in general remain our most read content. And quietly without fanfare, we have received several emails from investment banks, global auto-makers, manufacturers and mining firms for our integrated steel cost of production cost build-up model.

So if you want to know what steel prices may do, one element to aid in that understanding relates to the underlying commodity prices. In particular, Indian iron ore contracts are settling for as low as $48-50/ton for medium grade iron ore with iron content of 62-63%, according to the Wall Street Journal. Indian iron ore producers take their pricing cues from the Big 3 ” BHP, Vale and Rio Tinto. Contract prices for the Big 3 will likely settle at the $55/ton range, which represents a 30% drop in prices. Yet others are calling for a 40% drop in prices. The drop may depend on the grade and quality.

Coking coal prices have also dropped considerably. According to this Seeking Alpha article, Japan’s Nippon Steel, Mitsubishi Corp, the Japanese trading company, and Australian miner BHP Billiton agreed to a price of $128-$129 a ton. Last fiscal year, steel producers paid a record $300 /ton for coking coal.

Time to update those integrated steel cost build-up models. Knowing these price levels and using them in negotiations with producers and distributors (note: these prices apply to integrated steel mills) will help you Beat the Market.

As much as we believe the market is at bottom, monthly prices in the US for a full range of steel products continue to slip. In China, the situation looks a bit different. Between November 2008 and April of 2009, prices for HR coil started and ended at about the same level, $468/ton, according to MetalMiner IndX(SM). In between those two time frames, prices actually increased but have been slowly and steadily declining after hitting a 5-month high of 4000 Yuan or $585/ton.

We will also be coming out with an in depth research piece on steel price trends using our first six months of data collected via MetalMiner IndX(SM) later this month.

–Lisa Reisman

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