As Iron Ore Falls, So Does U.S. Steel’s Cost Advantage

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Cold-rolled steel

U.S. Steel Corp.‘s cost advantage over domestic competitors from owning its own iron ore mines is shrinking as the price of the commodity used to make steel has sunk to a 4-year low.

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Analysts said iron ore’s decline to $70 a metric ton puts pressure on the Pittsburgh-based steelmaker because competitors will benefit from lower raw material costs that U.S. Steel has long enjoyed. That pressure will mount as steel prices follow iron ore prices lower, especially helping competitors with lower production costs such as Nucor Corp., U.S. Steel’s chief rival.

“The U.S. Steel guys are going to have to work real hard to separate the revenue declines from external forces,” John Tumazos of Very Independent Research of Holm-del, N.J. told the Pittsburgh Tribune-Review. “Everything they’ve done in the last two years to cut costs was necessary, but everything points to more cost cuts.”

Under CEO Mario Longhi’s leadership, the steelmaker has closed mills, saved $500 million by halting an iron ore expansion project in Keewatin, Minn., relinquished control of its money-losing Canadian unit and saved $495 million under its Carnegie Way initiative to cut costs and return to profitability.

On Tuesday, December 16, the day’s biggest mover was Chinese slab, which saw a 10.6% decline to CNY 2,890 ($466.85) per metric ton. Following a two-day rise, the price of Chinese HRC flattened at CNY 3,090 ($499.16). The price of Chinese coking coal saw little movement at CNY 1,080 ($174.46) per metric ton. The price of iron ore 58% fines from India hit a high price of CNY 840.00 ($135.69) and a low price of CNY 840.00 ($135.69) per dry metric ton.

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The cash price of steel billet remained essentially flat at $500.00 per metric ton on the LME. For the fifth day in a row, the steel billet 3-month price remained essentially flat on the LME at $480.00 per metric ton.

The 3-month price of the US HRC futures contract weakened by 0.3%, settling at $610.00 per short ton. The US HRC futures contract spot price held steady around $614.00 per short ton.

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