Following a continuously declining price trend over a period of several years for raw materials that are of primary importance for blast furnace-based crude steel production such as iron ore and metallurgical coal, the beginning of 2016 marked a turnaround.
This change was initiated by a first slight recovery of the iron ore prices in January 2016, after having bottomed out at roughly USD 38 per ton (CFR China). Since China is by far the world’s largest importer of iron ore covering two thirds of the iron ore demand by sea freight, the economic situation of the Chinese steel industry naturally plays a vital role in terms of the general price development for iron ore. Besides the high steel production rates, the reason for the massive iron ore consumption in China is that the country’s availability of scrap metal is relatively low, which is why it uses proportionally more pig iron in the steel industry than any other country. Even though, in light of the above, the downturn of the iron ore price over a period of two years was also the result of the weaker growth in crude steel production in China, it was further intensified by a concurrent substantial expansion of the global mining capacities based on excessive expectations on the part of the mining corporations with regard to the steel demand in China. Not least due to economic stimulus measures by the Chinese government, the steel demand bounced back in the course of calendar year 2016. Furthermore, supply parameters influencing the pricing process changed as well. Thus, for example, the major Australian and Brazilian iron ore producers curtailed their original growth plans. Since the Chinese iron ore is of comparably lower quality, the steel industry in China focuses increasingly on high quality iron ore, not least due to associated environmental issues, which in recent years resulted in the closing of numerous Chinese mines as well as higher import needs. In addition, due to the bursting of a dam in an iron ore mine in Brazil in November 2015, in particular the availability of iron ore pellets (precompressed ore) has gone down with the result that the surcharges for pellets worldwide have significantly increased. The notable spike of the ore base price to just under USD 90 per ton in March 2017 resulting from these developments and marking a peak since the summer of 2014 – apart from the fundamental developments described above – is also the result of a substantial expansion of financial derivatives which are based on the development of the iron ore price and have therefore intensified the upward trend.
At the beginning of the business year 2016/17, the voestalpine Group began procuring raw materials and energy for the new location in Corpus Christi, Texas, USA. The respective volume flows have since been established and have become an integral part of the corporate raw materials portfolio.
Even more remarkable than the iron ore situation have been the price surges for coking coal in the business year 2016/17. The immediate trigger for this price explosion on the spot market starting in the summer of 2016 included mine closings by government order as well as the reduction of annual work days in Chinese coal mines and the supply shortage resulting from that. In addition, heavy rain falls in northern China caused logistical problems with the transport of the domestically mined coal and making Chinese steel companies increasingly dependent on imported coal. After the supply in North America had already noticeably dropped over the previous years due to numerous mine closings, the development of steel production, internationally regarded as stable, led to a shortage of high quality coking coal on the global spot markets in the course of 2016, because of restrictions in the Chinese mines. While the price for one ton of coking coal (FOB Australia) was still at USD 80 in March 2016, it jumped to roughly USD 300 within only a few months. The coal price thus reached a five-year high before eventually settling between USD 150–160. Even more dramatic was the surge in April 2017 when the coal price doubled within only one week. The reason for this, once again, was a supply shortage due to environmental conditions, but this time in Australia caused by a cyclone that damaged important railway connections from the mines in Queensland to the shipping ports.
In the business year 2016/17, the coke derived from coal and used in blast furnaces logically tracked the price of the base product. At its peak, the spot market price for one ton of coke (FOB China) was at roughly USD 330, which, compared to the listing in March 2016 of just over USD 100, is a three-fold increase in value.
During the past business year, the price for high quality scrap also showed some rather varying developments. While one ton of scrap was listed at about EUR 170 (type E3, Germany) at the beginning of 2016, it jumped to EUR 260 in May 2016 and back to under EUR 200 two months later. Only at the end of calendar year 2016 did the price increase reach a sustainable level. Toward the end of the business year 2016/17 the price of scrap returned to the level of about EUR 260 per ton.
After the prices for the most important alloys, which are a significant cost factor particularly in the High Performance Metals Division, dropped in part substantially in the business year 2015/16, business year 2016/17 brought about a trend reversal with some marked price increases for certain alloys. For example, in particular the procurement cost for molybdenum, vanadium, chrome, and manganese rose significantly. For nickel, the alloy with the highest value ratio in the High Performance Metals Division portfolio and subject to annual price fluctuations of up to 85% over the past years due to supply volatilities, the fluctuations persisted largely unabated in the past business year. Only the first months of 2017 showed a certain easing of the situation at the London Metal Exchange. The price development for zinc, an element primarily used in the Steel Division, rose continually over the course of the business year.