The spread between prices for European hot-rolled coil steel and raw materials hit a a multi-year high in February, as rising spot steel prices continued to outpace iron ore and scrap costs.
Northwest European HRC steel averaged just under Eur420/mt ($508/mt) more than raw materials in February, up from around Eur398/mt in January, according to estimates by S&P Global Platts on March 1.
Higher steel prices have carried the spread up steadily from a low of Eur193/mt last June, Platts estimates showed.
Forward spreads looked well supported in the Eur300-450/mt range through into the second half of 2021, based on European HRC and Asia-Pacific raw materials derivatives, using Feb. 26 assessments by Platts and Feb. 28 data from CME Group.
February's Eur420/mt HRC-raw materials spread was the highest since at least April 2016 -- when the spreads were first tracked by Platts.
In Europe, a further increase in HRC spot prices over February boosted indicative steel margins, with regional steel mills looking to achieve higher prices on sales lagging spot prices.
Steel mills continued to increase price offers on orders as lead times extended and capacity was eaten up. HRC ex-works Ruhr reached Eur735/mt on Feb. 26, up 2.65% from Jan. 29.
In China, the HRC export price to iron ore and coking coal spread edged up to $265.76/mt in February, from a low of $262.78/mt in January. Chinese margins have been pressured by an increase in iron ore and import hard coking coal prices, adjusted for typical use per ton of steel.
US HRC to shredded scrap spreads surged in February on stronger US flat steel prices. The metric touched $827.82/st in February, up from $678.53/st in January.
In 2020, the Northwest Europe HRC-steel raw materials gage averaged around Eur253/mt, close to typical break-even at regional steel plants heard to be around Eur250/mt for commodity grade steel. In 2019, the spread averaged around Eur241/mt.
EU mills ran at higher pig iron and steel rates in January than in December, with pig iron rates up 3.6% on month, according to World Steel Association data. Compared with January 2020, rates were little changed, as more steel capacity came back online and stepped up utilization rates.
Iron ore
Iron ore prices in China, used as a benchmark for global seaborne contracts, fell 1.5% in February month on month to average $165.61/dry mt CFR China.
Coking coal prices delivered into Rotterdam rose further last month. The reference premium low-volatile matter coking coal index delivered to Europe rose 12% to an average of $155.51/mt CFR Rotterdam in February from January.
Regional Northern European shredded scrap prices fell 11% last month to Eur332.50/mt delivered basis.
Platts steel to raw material price spreads are indicative margins that do not account for inland logistic costs, power, natural gas or other blast furnace and steel-making inputs such as ferroalloys, anodes and refractories.
Break-even levels in Europe are partly dependent on logistics costs and raw material configurations.
Platts European HRC spreads are based on commodity-grade flat steel specifications. Contract steel sales may have additional grade and specification-based premiums, and terms may lag spot indexes. Producers with higher grade steel portfolios may be less exposed to commodity-grade steel margins against underlying steel raw materials costs.
Source: S&P Platts