Coking coal beats iron ore as the number one most expensive steel input

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Coking coal has overtaken iron ore to become the most expensive raw material for steelmakers, after soaring prices in recent weeks, an analysis by S&P Global Platts showed.

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Global steel mills from East Asia to India, Europe and Brazil scrambled to source metallurgical coal amid historic recovery caused by tight global supplies and disruption of trade flows due to the COVID-19 pandemic.

A Platts calculation based on 1.6 t of iron ore and 0.7 t of non-premium hard coking coal required per tonne of hot metal, the cost of iron ore is estimated to be $ 150 / t, lower than the cost. coking coal at $ 350 / t. The calculation used the Platts IODEX and Low Vol HCC FOB Australia benchmark index, ignoring the lag in delivery time for raw materials, as well as other expenses including labor, energy. and processing.

Platts valued the HCC Premium Low Vol at a 10-year high of $ 354.00 / t FOB Australia on September 16. The upturn in coking coal was partly enabled by the recent collapse in iron ore prices, according to several market sources. The IODEX iron ore benchmark 62% Fe fell from $ 128 / mt to $ 94 / mt CFR China on September 20, down 58% since mid-July.

Coking coal was now more expensive than iron ore from a budgetary point of view, with the overall cost of inputs for the raw material rising between 50 and 60% as of September 20 since the end of July, taking into account the rates of chip and pellet consumption, a source from a European steel plant told Platts.

An end user in India said coking coal now accounts for more than 60% of the total cost of inputs needed to produce hot metal for West Indian factories. This end-user cost estimate was based on POS price, ocean freight, and other logistics expenses as of September 21.

The tightening global supply of sea-transported coking coal in the second half of 2021 resulted in lower spot trading volumes, pushing the coking coal market upward, sources said. Spot demand for coking coal shipped by sea out of China increased by about 280% year-on-year in the first half of 2021, according to data from Platts.

Despite the scarcity of supply, shipments of coking coal have attracted increased buying interest from traditional international markets, including Japan, India, Europe and South America, over the course of in recent months, sources said.

“You have the raw materials in steel [of iron ore and coking coal] offset each other, and on the other hand, steel prices have remained high in many parts of the world, which seems to justify end-user buying interest in coking coal, even at these high levels ” , said an international trader.

Rising Coking Coal Costs Worst For Chinese Plants

In China, soaring coking coal costs have appeared to be getting worse, with the raw material accounting for between 50% and 70% of the input costs to produce hot metal, according to a recent market research study by Platts. A source from a Shandong steel plant told Platts that the estimated cost of the plant’s coking coal has risen to about 70% of the total raw material input since May.

“The rise in domestic prices since May has made the materials transported by sea more attractive to east coast factories like us, as imports were relatively cheaper and it could help reduce transport costs by 200-300 yuan / tm, compared to the supply in Shanxi province, ”he added. said a source at the Shandong factory.

Platts valued the HCC Premium Low Vol at an all-time high of $ 562.00 / t FOB Australia on September 16. Meanwhile, Shanxi PLV ​​domestic grades were valued at $ 562.29 / t on a China CFR equivalent basis. About 90% of Chinese consumption of encountered coal depends on domestic production, market sources said.

While iron ore costs have fallen below 50% of the total cost of producing hot metals, from a typical level of 60%, since July, coking coal is now the biggest input cost, said a source from a Hebei-based steel plant.

The divergence between seaborne coal and iron ore prices has accelerated since late July, with premium hard coking coal gaining $ 189.5 / mt, while fine grade iron ore fines average 62% Fe decreasing by $ 91 / mt based on CFR China, as of Sept. 14, according to Platts data.

“We were able to buy the expensive coking coal, thanks to the drop in iron ore prices which offset in the mix and allowed us to continue to profit from the finished steel markets,” a source said. in a steel plant in northeast China.

Chinese steel mills’ profit margins were estimated at $ 110 / mt for domestic HRC and $ 85 / mt for domestic rebar, as of Sept. 20, according to data from Platts.

Chinese steel mills continued to source premium hard coking coal from the United States and Canada, and injected pulverized coal from Russia, as part of an unofficial ban on imports of Australian coal, have indicated sources. Chinese customs data also showed trade flows for softer coals from Indonesia, Colombia and Mozambique in recent months.

The cost of coking coal had risen to 33% of overall hot metal production expenditure as of September 20, including other inputs such as labor, energy and processing, from an average of 25 % in the past, according to a major Shanghai steelmaker. .


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