Analysis: Global steel mill spreads strong into year end

Global indicators of operating margins at steel mills look strong across the board into the end of the year, as increases in steel prices have kept up with volatile iron ore, coking coal and scrap costs, according to S&P Global Platts analysis and data.

In China, spreads between steel and prices of imported blast furnace raw materials remained close to multi-year highs reached in September, with the China HRC export spread on Monday at $323.50/mt, from the record of $356.48/mt.

On Monday, iron ore 62% Fe reference prices rose to $70.35/dry mt CFR China, compared with an average $64.28/dmt in November.

Steel mill spreads in China had been declining a little due to changeable iron ore costs and weaker steel pricing from earlier peaks.

However, spreads remained relatively strong into November, and Chinese winter pollution cuts creating new operating and iron ore procurement challenges.

Iron ore import prices into China rose last month from October levels and have continued to strengthen. Feedstock costs, including what were steady coking coal import prices, have been creeping back toward an August high.

However, raw material costs for reference iron ore and premium coking coal imported to China in November were 26% lower than for November 2016, using spot prices and quantities used per ton of hot metal.

In November 2016, Platts Chinese HRC export prices averaged just under $450/mt while last month they were at $545.45/mt.

Rebar saw even bigger price gains year on year.

On Monday, the S&P Global Platts China rebar export price-based spread rose to $307.64/mt, up from an average $298.47/mt in November. On September 21, the China rebar export spread hit $329.11/mt.

Turkey, US Markets

In the Turkey and Black Sea region, stronger scrap pricing has returned as a feature, with margin pressure on rebar as billet prices strengthened.

Melt margins fell slightly last month as gains in rebar were insufficient to fully compensate for scrap's cost increase.

A weakening in high relative billet pricing last month led to recovery in re-roller margins against export Turkey rebar prices.

Rebar-scrap margins in Turkey closed at $188/mt on Friday, compared with November's $204.93/mt average. Despite that, Turkish EAF mills have been enjoying higher spreads than were available for most of the first nine months of 2017, with a peak in the spread at $227.50/mt on September 29.

In the US, scrap-based mill spreads were around earlier highs.

While shredded Midwest scrap prices rose this month, US HRC steel climbed and steady US rebar prices limited gains for the construction grade.

As of Friday, the US HRC spread was at $362.12/short ton, close to highs seen in the first half of the year.

Source: S&P Global Platts