steel price

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U.S. raw steel production for the week ending Oct. 19 slowed, with the sector’s capacity utilization rate checking in just below the important 80% mark, all coming as steel prices continue to fall — in some cases, to late 2016 levels.

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Capacity utilization for the U.S. steel sector during the week ending Oct. 19 checked in at 79.6%, according to the American Iron and Steel Institute (AISI).

Production for the week reached 1.84 million tons, down from the 1.88 million tons produced during the equivalent week in 2018 (at a capacity utilization rate of 80.1%).

Meanwhile, production during the week ending Oct. 19 picked up 1.1% from the previous week, when production reached 1.82 million net tons at a capacity utilization rate of 78.7%.

Production for the year through Oct. 19 checked in at 77.9 million net tons, at a capacity utilization rate of 80.3%. The year-to-date production marks a 2.8% increase compared with the same period in 2018, when the rate was 77.5%.

The steel capacity utilization rate remains above the 80% mark for the year, but it has been sliding in recent weeks.

U.S. steel price have showed no signs their slide is nearing an end.

The U.S. HRC price is down 12.63% over the last month, reaching $498/st — dropping below the $500/st mark for the first time since late 2016.

The U.S. CRC price is down 8.99% over the last month, down to $688/st, also its lowest since late 2016.

U.S. HDG is down 9.26% to $745/st.

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Meanwhile, plate, which recently lagged behind the other forms of steel, has showed a more moderate decline over the past month. The U.S. plate price is down 1.49% to $727/st, bringing it down to January 2018 levels.

The World Steel Association is set to report September steel production figures later this week.

In its recently released October Short Range Outlook, the World Steel Association forecast global steel demand would rise 3.9% this year, but just 1.0% next year amid slowing overall growth, trade uncertainty and weakness in the automotive sector.

The October 2019 Monthly Metals Index (MMI) report is in the books.

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This month, just one of the Monthly Metals Indexes (MMIs) increased, while six declined and three held flat.

Some highlights from this month’s MMIs:

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The Raw Steels Monthly Metals Index (MMI) took another hit this month, dropping three points to 67. The index has now dropped for seven consecutive months — following an early 2019 high of 82 in March — on the back of falling steel prices.

U.S. steel prices dropped in September, with plate prices recording the greatest loss. However, historically, plate prices tend to track lower than CRC.

Based on technical analysis, prices for plate could still demonstrate more downside momentum compared to other forms of steel (HRC, CRC and HDG).

Source: MetalMiner data from MetalMiner IndX(™)

U.S. capacity utilization for the year to date remains above the critical 80% mark at 80.4%. During the period, production totaled 74.3 million tons, a 3% increase compared to the same period last year, according to the American Iron and Steel Institute (AISI).

However, weekly data for the week ending Oct. 5 indicated capacity utilization of 78%, with 1.8 million tons produced, a 3.9% decrease compared to the same period last year.

Chinese Prices Weaken

China CRC and plate prices nudged down recently, while HRC prices dropped to a greater extent.

Meanwhile, HDG prices took a clear downward turn in September.

Source: MetalMiner data from MetalMiner IndX(™)

During the course of 2019, Chinese steel prices looked fairly flat overall, with prices now lower than at the start of the year.

HRC, CRC and plate prices looked just slightly weaker compared to January prices. HDG prices dropped more noticeably, priced at CNY 5,690/mt in early October compared to the January price of around CNY 6,040/mt.

China’s Share of Total Global Production Continues to Increase

Based on data from the World Steel Association (WSA), global production of steel during the first eight months of 2019 totaled 1,239 million tons, up 4.6% percent compared to the first eight months of 2018.

China’s total share of global production totaled 53.6%, based on WSA data through August. Based on an estimated 664.04 million tons through August, production increased by 9.4% compared to the same period of 2018.

Additionally, in terms of monthly data, China’s steel production increased once again. China’s August production reached 87.25 million tons in August after dropping during the two months prior from June’s peak 2019 production of 89.09 million tons.

Meanwhile, production in Japan, the world’s third-largest steel-producing country, fell by 3.7% during the eight-month period, down to 67.589 million tons. The country’s share of global production dropped to 5.5%, compared to 5.9% during the first eight months of 2018.

U.S. production totaled 59.23 million tons through August, an increase of 4% compared to the same period of 2018, according to WSA numbers. Share of global production remained static at 4.8%. Likewise, production in India, the world’s second largest producing country, also remained flat at 6.1%, in terms of total global share of production.

Ongoing GM Strike Continues to Hurt Steel Demand

Given that demand from GM represents around 5-9% of annual steel demand in the U.S. (by various estimates), the ongoing strike continues to place a drag on U.S. steel prices.

As of Oct. 10, the strike had reached its 25th day.

What This Means for Industrial Buyers

Global growth in the production of steel appears to remain in excess of growth in steel demand, exerting downward pressure on prices.

Therefore, industrial buying organizations may benefit from understanding exactly when and how much to buy in this falling market.

Buying organizations interested in tracking industrial metals prices with ease should request a demo of the all new MetalMiner Insights platform.

Buying organizations seeking more insight into longer-term steel price trends may want to read MetalMiner’s Annual Metal Buying Outlook.

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Actual Raw Steel Prices and Trends

Steel prices weakened further in September.

Korean scrap prices registered a 16.9% decrease, falling to $116/st. Korean pig iron dropped 0.2% to $358/mt.

U.S. shredded scrap prices dropped 13.6% to $254/st. The U.S. Midwest HRC futures spot price dropped 10.9%, while the Midwest HRC futures three-month price fell by 3.6% to $522/st and $530/st, respectively.

LME billet three-month prices dropped 12% to $234/st.

Chinese prices in the index showed mixed, mild movement. Chinese billet prices increased the most, rising 2.1% to $488/mt. HRC prices decreased the most, dropping 1% to $505/mt.

Steven Husk/Adobe Stock

The Automotive Monthly Metals Index (MMI) held flat this month for an MMI reading of 85.

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U.S. Auto Sales

The Big 3, which now all report sales on a quarterly basis, released sales figures for the third quarter.

General Motors reported third-quarter deliveries of 738,638 vehicles, marking a 6.3% year-over-year increase.

Negotiations between GM and the United Automobile Workers (UAW) union entered their third week this week, UAW rejected the latest GM offer on Sept. 30, according to a UAW statement.

“This proposal that the Company provided to us on day 15 of the strike did not satisfy your contract demands or needs,” UAW Vice President Terry Dittes said in a release. “There were many areas that came up short like health care, wages, temporary employees, skilled trades and job security to name a few.  Additionally, concessionary proposals still remain in the company’s proposals as of late last night.”

Earlier this month, MetalMiner Executive Editor Lisa Reisman weighed in on a lingering strike’s potential impact on steel prices.

“Given that the U.S. market consumes about 110 million tons annually, and GM’s share represents about 8% of domestic steel production, it would take a 39-day strike to lower demand by 1 million tons, or 1%,” she wrote.

As of Thursday, Oct. 3, the strike has reached its 18th day.

Ford reported third-quarter vehicle sales of 580,251, down 4.9% on a year-over-year basis. However, Ford truck sales increased 8% year over year.

Fiat Chrysler’s third-quarter sales were flat compared with Q3 2018.

Honda sales were down 14.1% in September compared with September 2018 sales.

Toyota reported sales fell 16.5% in September on a volume basis and by 9.2% on a daily selling rate basis. Nissan’s September sales fell 17.6% on a year over year basis.

According to a jointly released forecast by J.D. Power and LMC Automotive, accounting for fewer selling days, September vehicle sales were down 7.8% compared with September 2018.

Ford, Mahindra Team Up

Ford recently announced a joint venture partnership with India’s Mahindra, which will aim to “develop, market and distribute Ford brand vehicles in India and Ford brand and Mahindra brand vehicles in high-growth emerging markets around the world.”

Ford will own a 49% controlling stake in the joint venture, with Mahindra owning a 51% stake.

“Ford and Mahindra have a long history of working together, and we are proud to partner with them to grow the Ford brand in India,” Ford’s Executive Chairman Bill Ford said in a release. “We remain deeply committed to our employees, dealers and suppliers, and this new era of collaboration will allow us to deliver more vehicles to consumers in this important market.”

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Actual Metal Prices and Trends

The U.S. HDG price fell 3.8% month over month to $804/st as of Oct. 1.

LME three-month copper was essentially flat, moving to $5,640/mt. U.S. shredded scrap steel fell 13.6% to $254/st.

The Korean aluminum 5052 coil premium rose 0.6% to $3.14 per kilogram.

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Global crude steel production increased 3.4% in August on a year-over-year basis, the World Steel Association reported.

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Production for the month reached 156 million tons, according to the World Steel Association report, which collects production data from 64 countries.

The 3.4% increase comes after a 1.4% year-over-year increase the previous month.

Broken down by individual countries, top steelmaker China produced an estimated 87.3 million tons, up 9.3% on a year-over-year basis — a sharp jump from last month’s 5% year-over-year increase.

As Stuart Burns explained yesterday, China’s production in recent years has continued to rise despite mandated production closures aimed at mitigating high pollution levels in many parts of the country. Production cuts were at first mandated by Beijing, but last year local authorities were set their own production cut levels.

“Fears are therefore rising that China could be on track to create a glut this winter despite the now normal winter closures,” Burns wrote.

“China’s rivals in southeast Asia are looking on warily concerned that rising exports will further depress regional prices as the domestic market fails to absorb the anticipated record output.

“That’s not good news for the rest of the world.

“Even markets protected by high tariffs like the U.S. will be dragged down by lower global prices and imports undercut domestic U.S. mills.”

As the winter heating season approaches in China, the scope of this year’s production cuts will prove to be a critical factor monitored by steel-producing nations around the world.

Elsewhere, Japan produced 8.1 million tons in August, down 7.8% year over year. South Korea’s crude steel production fell 2.6% to 5.9 million tons in August 2019.

In Europe, German production ticked up 0.8% to 3.3 million tons, while Italy’s production plunged 26.7% to 900,000 tons. France produced 1.1 million tons, up 11.2% year over year, while Spain’s production dropped 4.6% to 1.1 million tons.

U.S. production, meanwhile, hit 7.5 million tons, up 0.3% on a year-over-year basis.

According to the America Iron and Steel Institute (AISI), U.S. steel production for the year through Sept. 28 reached 72.6 million tons, up 3.4% compared with the same period last year.

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The U.S. steel sector’s capacity utilization rate checked in at 80.6% for the year through Sept. 28.

U.S. steel prices have been on the decline of late.

The U.S. HRC price is down 5.13% over the last month, down to $555/st as of Monday. U.S. CRC is down 1.98% to $741/st, while U.S. HDG is down 4.4% to $804/st.

The drop for plate has been even steeper, as U.S. plate is down 7.65% to $736/st.

The primary reason to pay attention to Chinese steel prices pertains to the country’s price leadership in the global marketplace.

However, since currency dynamics shifted recently, now is a good time to take a more tactical look at the U.S.-China steel price spread.

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The price spread between U.S. and Chinese steel increased during the months following the March 2018 implementation of tariffs on steel imports into the U.S.

After peaking around June 2018, the price spread between U.S. and Chinese steel commodity prices then shrank again by July 2019 — to its lowest level since December 2017 — largely due to falling U.S. prices.

Source: MetalMiner data from MetalMiner IndX(™)

The spread for CRC looks similar, but at different dollar amounts.

Source: MetalMiner data from MetalMiner IndX(™)

As shown on the chart of the spread below, for HRC, the spread between prices narrowed significantly several times in recent history, but came closest to approaching zero in December 2017 and then again in January of 2019.

A smaller spread benefits U.S.-based producers, since similar prices disincentivize imports.

Source: MetalMiner data from MetalMiner IndX(™)

Once accounting for additional costs associated with shipping, finance, the cost of carry and margin, any time the spread exceeds around $90/st — meaning U.S. costs exceed Chinese steel costs by a minimum of $90/st — imports start to look attractive, all other things being equal.

With tariffs, this cost should theoretically provide a buffer against import competition for U.S. producers to the extent of the tariff cost, plus the original competitor’s price, shipping and related costs associated with imports.

For example, assume a tariff rate of 25% on a China HRC price of $485/st and a U.S. price of $585/st. With import freight plus costs at an estimated $90/st, the tariff adds an additional cost of $143.75/st, with an end price total of $718.75/st.

In this example, at this price point and tariff rate, we would need to see the price spread exceed $233.75/st (cost of importing, plus costs of tariffs) before imports theoretically make sense, as shown by the purple line in the chart above.

For CRC, the red line in the chart below indicates where a $90/st import charge intersects the spread line.

For a short time during the start of the tariffs, U.S. producer prices surged; therefore, producers may not have actually allowed the tariffs to render protection as intended by their use, per the HRC model shown above.

U.S. producer prices look to have already corrected from the aforementioned price surge.

Source: MetalMiner data from MetalMiner IndX(™)

Looking at the chart above, CRC imports should be more heavily impacted by the imposition of tariffs, since imports make more sense from a price perspective.

Instead of seeing tariffs as providing a buffer allowing higher prices, what seems closer to reality has more to do with China’s need to lower prices. With U.S. prices corrected, we expect to see lower Chinese prices, as producers drop prices to stay competitive.

In fact, recently we did see lower Chinese HRC prices and a fairly weak, but still sideways, domestic CRC price. Weaker demand in China is a key factor underpinning the price weakness.

Source: MetalMiner data from MetalMiner IndX(™)

Since June, as shown in the chart above, the domestic price of HRC steel in China trended lower, but just slightly (note the narrow range shown on the vertical axis).

In early August, the Chinese government allowed the currency to weaken to a 7-to-1 level vis-a-vis the yuan versus the dollar. This effectively dropped the price of Chinese steel for international buyers and the amount of the related percentage-based tariff.

Source: MetalMiner data from MetalMiner IndX(™)

Compared to HRC, China’s domestic CRC price trend has looked more firmly sideways since June 2019.

Source: MetalMiner data from MetalMiner IndX(™)

In the case of CRC, we can see more clearly in the chart below how the adjusted exchange rate impacts the international price of Chinese CRC steel exports, as the domestic price has nudged up overall since June.

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Source: MetalMiner data from MetalMiner IndX(™)

What This Means for Industrial Buyers

Chinese producer prices looked flat to weak during the summer months and into the fall, as the exchange rate adjustment made steel imports from China look more attractive.

Given the high levels of production from China, generally speaking, we can expect to see the highly competitive price environment to continue, providing industrial buyers with ample options for negotiations.

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Earnings guidance recently released by U.S. steel companies have a common denominator: the impact of falling steel prices.

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Last year, upon the Trump administration’s implementation of Section 232 steel tariffs, domestic steel prices surged. However, since mid-2018, steel prices have steadily declined.

As such, steel industry optimism, buoyed by rising capacity utilization rates and restarts of idled production — bringing jobs with them — has subsided in the last year.

On the one hand, steel prices seemed to find a floor earlier this year.

In mid-July, the U.S. HRC price dropped down to $530/st before eventually bouncing back up to $590 over the ensuing month, according to MetalMiner IndX data.

However, the price has once again declined. The U.S. HRC price is down 3.39% over the last month, down to $570/st.

Meanwhile, HDG prices have followed a similar trajectory, reaching a bottom in July and steadily recovering after a shorter-term downtrend that began in March. HDG prices, too, are down in the last month, having fallen 2.38% to $832/st.

CRC prices have not fallen like HDG and HRC prices have over the last month. Plate prices, however, are down 7.63% over the last month, down to $738/st.

All of this is to say that falling steel prices are impacting U.S. steel firms’ decisions.

Last week, Steel Dynamics, Inc. reported its third-quarter earnings were expected to be down compared with the previous quarter.

“The reduced earnings are primarily related to lower profitability from the company’s sheet steel operations, as shipments and average steel pricing declined in the quarter, more than offsetting lower scrap costs,” the company said. “Underlying domestic steel demand remains principally intact for the primary steel consuming sectors, with particular strength in construction.

“Third quarter 2019 profitability for the company’s metals recycling platform is also expected to decrease when compared to sequential second quarter results, as a result of declining ferrous and nonferrous commodity prices coupled with steady shipments.”

Similarly, U.S. Steel’s outlook regarding a pair of blast furnaces was impacted by falling prices.

“The positive flat-rolled steel market indicators experienced earlier this summer have softened after a brief recovery in steel selling prices,” the steelmaker said in its third-quarter earnings announcement last week. “The impact of falling steel prices through the second quarter, combined with the impact of a larger than expected drop in scrap prices on market sentiment, is expected to negatively impact Flat-rolled earnings in the second half of the year.

“As a result, our current assessment of the Flat-rolled segment suggests two blast furnaces will remain idled through at least the end of the year.”

Nucor Corporation also noted falling steel prices in its guidance for the third quarter.

“The performance of the steel mills segment in the third quarter of 2019 is expected to decrease compared to the second quarter of 2019 due primarily to lower prices for sheet and plate steel,” the company said. “Although we still see stability in most of the end use markets that we serve, there has been some softening in automotive, agricultural products and power transmission markets.”

Steel companies have also faced pressure from a raw material perspective, given this year’s surge in iron ore prices (on the back of supply-side disruptions in Australia and Brazil). Iron ore prices have put the squeeze on steelmakers’ margins, with prices of the steelmaking material surging to around to five-year highs earlier this year (above $126/mt).

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On the bright side — for steelmakers, that is — iron prices have subsided of late, falling below $100/mt.

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The U.S. steel industry posted a capacity utilization rate of 80.7% for the year through Sept. 14, down slightly from the 80.8% utilization rate for the year through Sept. 7, according to the American Iron and Steel Institute (AISI).

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AISI reported U.S. steel production for the year to date totaled 68.96 million tons, up 3.8% from the 66.46 million tons produced during the same period in 2018, when capacity utilization checked in at 77.5%.

Meanwhile, for the week ending Sept. 14, 2019, domestic raw steel production reached 1.81 million net tons at a capacity utilization rate of 77.8%, down 2.9% from the same week in 2018, when production was 1.87 million net tons at a capacity utilization rate of 79.6%.

Production for the week ending Sept. 14, 2019, was also down 1.3% from the previous week, when production reached 1.84 million net tons at capacity utilization rate of 78.8%.

Broken down by region, raw steel production for the week ending Sept. 14, 2019, checked in at:

  • Northeast: 201,000 tons
  • Great Lakes: 692,000 tons
  • Midwest: 179,000 tons
  • Southern: 668,000 tons
  • Western: 71,000 tons

On the demand front, MetalMiner’s Belinda Fuller explained that sluggish demand last month led to a decline in the Raw Steels Monthly Metals Index (MMI).

Prices for U.S. HRC, CRC, HDG and plate traded sideways of late, flattening out after having previously gained some momentum.

However, shredded scrap steel prices surged last month.

“U.S. shredded scrap prices increased by 14.4% to $294/st, reflecting the shift of production methods toward electric arc furnace (EAF),” Fuller explained.

The World Steel Association will release its monthly global crude steel production figures later this month. Last month, the association reported crude steel production increased just 1.7% in July on a year-over-year basis, compared with a 4.6% year-over-year increase the previous month.

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Global crude steel production in July totaled 156.7 million tons.

GM workers this week went on a nationwide strike, the first since 2007 at the Big 3 automaker (pictured: the ACDelco and GM Genuine Parts processing center in Burton, Michigan, which opened in August 2019). Photo by Jeffrey Sauger for General Motors

Nothing entertains me more than receiving an oddball inbound phone call, email or, in this case, text message when something hits metals markets.

A great inbound came in yesterday regarding the nationwide strike at General Motors, which could have an impact on steel prices.

The question, “Do you think the GM strike will pull the market down further?” resulted in an immediate reply, “I don’t follow the stock market as closely as I do commodity markets.”

To which this large steel buyer replied, “I’m talking steel market, not stock market.”

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Now, that’s a very good question!

Let’s do a quick calculation to assess impact. I feel like I’m interviewing for a big consulting firm and they have given me my first case study — “how would you calculate the GM strike’s impact on steel demand?”

So, here goes:

  1. GM produced 8.4 million cars in 2018.
  2. According to the God of Google, 2,138 pounds of steel (on average) are in every car/truck produced by GM.
  3. So, 8.4 million cars annually multiplied by 2,138 pounds of steel — we converted the 2,138 to 1.069 short tons — equals 8.98 million short tons of steel.
  4. The average automotive OEM operates 365 days a year, less a mandatory two-week shutdown — so, 365 minus 14 equals 351 operating days.
  5. That means GM’s strike would hinder steel usage by 25,582.9 tons (on average) per day.

Given that the U.S. market consumes about 110 million tons annually, and GM’s share represents about 8% of domestic steel production, it would take a 39-day strike to lower demand by 1 million tons, or 1%.

Does that mean the GM strike could cause steel prices to plummet or fall further?

Not likely.

However, coming into annual contract negotiation season, buying organizations should certainly take heed of underlying steel price momentum.

Fundamentals do not drive metal prices, as we have long noted, but they may provide some leverage to other large buying organizations.

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Of course, if you disagree with this analysis, leave a comment!

The Raw Steels Monthly Metals Index (MMI) dropped more significantly compared to last month’s one-point decline, this month falling by four points to 70. Global prices looked weak overall; however, U.S. futures spot prices increased, along with U.S. shredded scrap prices.

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U.S. steel price increases lost momentum in August, as prices for HRC, CRC, HDG and plate all moved more or less sideways.

Source: MetalMiner data from MetalMiner IndX(™)

U.S. capacity utilization fell below 80% recently. Capacity utilization dropped to 78.8% during the week ending Sept. 7, with 1.835 million net tons produced, compared with 1.866 million net tons the week prior. This represented a 1.7% decline compared with the same period last year, according to the American Iron and Steel Institute (AISI).

U.S. shredded scrap prices increased by 14.4% to $294/st, reflecting the shift of production methods toward electric arc furnace (EAF).

Chinese HRC, CRC Prices Move Sideways Once Again

Chinese HRC and CRC prices continued to move sideways overall in August. CRC prices once again increased, while HRC prices moved lower, although neither moved with much power. The spread between HRC and CRC prices increased once again this month after hitting a two-year low a couple of months ago.

Global Production Increases Mildly; Production Drop in China

According to the most recent data available from the World Steel Association (WSA), global production of steel totaled 156.7 million tons in July, up by 1.7% compared to last year. U.S. production totaled 7.5 million tons during July 2019, up by 1.8% compared to July 2018.

China produced 85.2 million tons of steel in July, up by 5% compared to July 2018. However, production dropped compared with June, marking the second straight month of falling production. China’s output in May — the peak for 2019 thus far — totaled 89.1 million tons.

What This Means for Industrial Buyers

While a few prices in the index increased this month, the majority of prices dropped, pulling the index down. However, key steel prices moved sideways.

Industrial buying organizations will still want to watch the market in September for typical seasonal price increases.

Buying organizations interested in tracking industrial metals prices with ease will want to request a demo of the all new MetalMiner Insights platform.

Buying organizations seeking more insight into longer-term steel price trends may want to read MetalMiner’s Annual Metal Buying Outlook.

Free Partial Sample Report: 2020 MetalMiner Annual Metals Outlook

Actual Raw Steel Prices and Trends

Overall, global steel prices weakened during the month of August. However, the U.S. Midwest spot price increased by 8% to $586/st. U.S. shredded scrap prices increased by 14.4% to $294/st.

Chinese prices in the index fell across the board this month. Coking coal prices fell the most — by 14% — to $238/st. Chinese iron ore prices dropped by 4%.

Chinese steel billet decreased by 9.5% to $434/st. Chinese steel slab prices dropped by 8.7% to $462/st, while Chinese HRC prices dropped by 8% to $463/st.

Korean scrap prices increased this month, somewhat reversing last month’s 8.3% decrease, up by 3.9% to $127/st. Korean pig iron fell again this month, dropping by 2.2% to $325/st.

LME billet three-month prices dropped by 9.8% $241/st.