According to the official statistics of the World Steel Association, in calendar year 2019 a total of 1,848.5 million tons of steel were produced worldwide. Of this amount, only a small portion was generated by recycling steel scrap using electric arc furnaces. Most was manufactured based on furnace technology, which requires two key raw materials: iron ore and coke. These two commodities thus also are the key input materials for both the Steel Division and the Metal Engineering Division.
In 2019, iron ore prices were very volatile at a high level compared with the previous year. In 2018, the spot market price (cost and freight (CFR) China) had still largely fluctuated between USD 65 and USD 75 per ton. The sharp increase in prices at the start of 2019 to about USD 90 per ton resulted mainly from a dam break in an iron ore mine in the Brazilian state of Minas Gerais. For safety reasons, production in the company’s other mines had to be suspended until further notice as well. Highly inclement weather in Australia further reduced global iron ore supplies. But the fact that iron ore prices continued to climb at the start of voestalpine’s business year 2019/20 was also due to unexpectedly high demand from China.
At the global level, by contrast, in 2019 steel producers in many countries were confronted with declining demand due to growing protectionism. In China—the most important supplier by far, given the country’s market share of more than 50%—steel producers benefited from the tailwinds of the government’s economic stimulus programs. At about USD 120 per ton, the spot market price reached a level in July 2019 that had last been seen in 2014. In early August, prices abruptly dropped back down to below USD 100 thanks to mine capacity recoveries as well as the slight slowdown in expectations regarding future demand from China. Australia and Brazil supply most of the world’s iron ore. This means that two countries largely control the world’s second-largest commodity market after crude oil and the most important raw material for steelmaking.
For the remainder of the business year 2019/20, iron ore prices were less volatile, roughly fluctuating between USD 80 and USD 95 per ton. Even the spread of COVID-19 in China caused only a temporary drop in iron ore prices at the end of January 2020.
The surcharges that were slapped not only on fine ores (a base product), but also on higher-rated iron ore pellets rose dramatically in the wake of the Brazilian dam break at the start of 2019. As the business year 2019/20 wore on, however, the supply shortages slowly dissolved, in turn pushing down spot market prices.
Coke, which is produced from metallurgical coking coal, serves as both a source of energy and a reducing agent by removing oxygen from the iron ore. At just over USD 200 per ton (free on board (FOB) Australia), the price for coking coal at the start of the business year 2019/20 corresponded more or less to the average price in the previous business year. When the price of iron ore peaked in July 2019, the price of coking coal was already trending downward. It gradually declined to USD 135 toward the end of the calendar year. There are several reasons why the price trend for coking coal was in part opposed to that for iron ore. China’s position in the international coking coal markets is not as dominant as in the iron ore market. In addition, there were no weather-related losses on the supply side during the business year 2019/20. And, finally, Chinese steel plants were supplied by rising Mongolian exports. It wasn’t until the fourth quarter of the business year 2019/20 that the price of coking coal gradually recovered, closing at just over USD 160 per ton as of the end of March 2020.
Both the Steel Division and the Metal Engineering Division use high-quality scrap in addition to pig iron. Steel scrap also is the main base material for the production of special steel using electric arc furnaces in the High Performance Metals Division. Prices for steel scrap trended downward during the first half of the business year 2019/20 as well, in part offering a contrast to those for iron ore. While high-quality scrap (type E3, Germany) still cost EUR 285 per ton at the start of the business year, its price fell to less than EUR 210 in October 2019. This was followed by a gradual recovery. Toward the end of the business year, the price for high-value steel scrap was about EUR 235 per ton.
Alloys are a key cost factor in the High Performance Metals Division. Moreover, they are used in steel production alongside pig iron and scrap to manufacture highest-quality steel grades. The price of nickel, the most important alloy for the High Performance Metals Division in cost terms, was highly volatile throughout the business year 2019/20. At its start, nickel still cost about USD 13,000 per ton. The announcement by the government of Indonesia, the world’s largest nickel producer, that it would impose an embargo on nickel exports come January 2020 drove the price to about USD 18,300 per ton in September 2019. However, declining demand for stainless steel as well as the expectation that production rates in other countries would grow caused the nickel price to drop over time. At about USD 11,200 per ton, the nickel price as of the end of March 2020 had fallen substantially below its level at the start of the business year.
Prices for zinc dropped by roughly 40% during the reporting period, from about USD 3,000 per ton to about USD 1,850. Prices for molybdenum, chromium, and vanadium also saw significant declines throughout the business year 2019/20.