At the beginning of the business year 2014/15, expectations were that the price trend for iron ore would be recessive, but the experts assumed that the price for one ton of fine ore (CFR China) would level off at about USD 100. In reality, the downward spiral of the price for iron ore continued throughout the entire business year 2014/15 and de facto fell within one year from just over USD 110 USD by around half to USD 60 as of the end of March 2015. While in the two previous years the trend had been reversed in the summer or early fall with prices moving back up, this did not occur in this case. The reasons for the marked decline are numerous and range from massive expansion in the size of existing mines—actually smaller than originally planned due to the lower growth forecasts for steel production in China—to the significantly reduced cost basis of many mining companies. The lower production costs (based on the US dollar) are largely due to lower transport and energy-specific mining costs resulting from the collapse of the oil price, but also because of the weakening of the currencies in Brazil and Australia—the countries that produce around half of the global iron ore supply—vis-à-vis the US dollar.
In contrast, the price trend for coking coal was largely stable during the entire business year 2014/15. On the average, the price on the spot market (FOB Australia) stayed around USD 110 for a ton of coking coal and did not fall below USD 100 until the end of the business year. In contrast to iron ore, the price decline of coking coal began as early as the beginning of the 2011 calendar year and continued until the end of the business year 2013/14. Thus, the price of coking coal fell by more than two thirds within four years. The reasons for this development are, on one hand, additional supply of coal, especially from Mongolia, which is used primarily by Chinese steel manufacturers and, on the other, the fact that, viewed globally, there have not been any major production losses since the flooding in Australia in early 2011.
Procurement costs for coke have declined by a similar range as those for coking coal in recent years; at the beginning of the business year 2014/15, they were at around USD 200 (FOB China) per ton. During the business year 2014/15, they ranged between USD 175 and 200; as of the end of March 2015, they had slipped slightly below this range to around USD 165. In the past few years, the price differential between the base product coking coal and coke had already fallen to around USD 100, but in this business year, the added value for refining coke has again dropped considerably.
The fact that the price curve for scrap does not necessarily follow the price of iron ore was demonstrated particularly in the first half of the business year 2014/15. While the price for the iron ore used in the blast furnaces continued to drop during this period of time, fluctuations in the price for scrap were barely noticeable. The downward trend did not begin until the second half of the business year, resulting in a price of around USD 300 per ton (CFR Turkey) as of the end of March 2015.
Although the past business year saw increasing political tensions in those countries that supply not insignificant amounts of raw materials to voestalpine, there were never any bottlenecks in the supply of ore, coal, coke, or scrap. But it was obvious once again that the Group’s long-term raw materials strategy that relies on a diversified and broad basis of supply sources in order to avoid dependence on individual suppliers or supplier countries is just as important as ever. Fundamental problems with regard to the general availability of raw materials are not anticipated for the business year 2015/16.