Raw Steels MMI: Sub-Index Drops as Chinese Steel Gains Slow

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The Raw Steels MMI decreased by three points, falling to 79 for our October reading.

The drop is mainly driven by a steel industry that has slowed. Domestic prices appear  to have lost momentum, while Chinese prices started October a bit weaker than they finished in September.

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Source: MetalMiner data from MetalMiner IndX(™)

U.S. HRC prices have not given signals as to which price direction they may take.

Chinese steel prices drive U.S. domestic prices. Since April, Chinese HRC prices increased. In September, Chinese steel prices also increased, although the pace of the increases slowed.

However, prices have begun to slip during the first few days of October. Market watchers should not yet draw any significant conclusions, but they will want to keep an eye on Chinese HRC prices. Chinese prices typically lead U.S. steel prices, and that is how they serve as a price driver to domestic prices.

The Spread

MetalMiner tracks a number of “spreads” within the steel industry. In this case, the spread to watch involves the price of HRC in the U.S. against HRC in China.

Early readings in October suggest that the spread might have started to increase again. The lower the spread, the less Chinese steel imports are, and the more buying organizations buy steel from domestic steel mills.

Source: MetalMiner data from MetalMiner index

Raw Materials

The Raw Steels MMI tracks a number of materials, including iron ore, coking coal, pig iron and scrap, among others.

September resulted in a general slowdown after the rally in industrial metals. Steel has not participated in the latest industrial metals rally.

Iron ore fell sharply this month. From a long-term perspective (see chart below), coking coal prices have seen an uptrend since 2016.

Long-term Coal prices. Source: MetalMiner analysis from TradingEconomics

The short-term trend also suggests a rising price for coking coal. However, coal prices fell in September. Lower coking coal prices do not act as a support for steel prices. When raw materials prices decrease, steelmakers have no reason to increase prices.

Short-term Coal prices. Source: MetalMiner analysis from TradingEconomics

Scrap prices also fell slightly this month. Rising scrap prices act as a support for steel prices.

Source: MetalMiner data from MetalMiner index

If raw materials increase in price, then steel producers have an easier time getting price increases for steel.

The chart above shows how HRC and scrap prices trade in the same general trend. Even if price movements vary in their magnitude, the direction and general dynamics remain similar for both. Therefore, buying organizations may want to follow scrap price dynamics to understand how steel prices may react together with scrap price trends.

What This Means for Industrial Buyers

Steel price dynamics slowed down this month. Even the industrial metals and commodities suggest that though we might expect steel to become more bullish, we need to see how steel prices react to the market.

Buying organizations will want to read more about our longer-term steel price trends with our free Annual Outlook.

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Actual Raw Steel Prices and Trends

HRC steel prices in China have decreased to $607/metric ton for our October reading. The U.S. Midwest HRC futures 3-month price dropped this month by 4.26%, reaching $606/short ton. Chinese steel billet decreased by 2.25% to $570.95/mt, while Chinese slab prices increased by 0.5%, reaching $590/mt.

The U.S. shredded scrap price dropped by 0.33%, reaching $300/st.

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