In the business year 2020/21, divergent trends drove the prices of the primary raw materials used in steel production due, in particular, to developments in China—by far the world’s largest steel producer by volume. Two facts above all others were relevant to the prices of the input materials used. For one, the number of new COVID-19 infections in China had already returned to a very low level as early as in the spring of 2020. Subsequently, the country ramped up economic activity at a time when almost all other areas of the world were in the grips of comprehensive lockdowns and, in part, industrial capacity reductions. For another, the Chinese state enacted infrastructure projects that stimulated steel production and thus increased the need for raw materials. As the Chinese steel industry relies largely on furnace technology, this drove the demand primarily for iron ore and coking coal; steel scrap is used only as a supplement in this steel production method.
Within the voestalpine Group, iron ore and coking coal and/or coke thus are also the key input materials for both the Steel Division and the Metal Engineering Division. The metallurgical processes used to manufacture steel there are tied to blast furnace technology, while recycled steel scrap and alloys are processed in the steel shop as a supplement to pig iron. The High Performance Metals Division, for its part, mainly uses high-quality recycled steel scrap as well as various alloying elements in connection with electric arc technology.
Australia and Brazil operate the world’s largest ore mines, but China is the largest buyer of this raw material. Strong demand from China as well as restrictions on worldwide maritime freight drove up iron ore prices over the course of the business year ended. From a high level to begin with, China’s steel production expanded by yet another 5% in the calendar year 2020 compared with the previous calendar year. At the start of the business year 2020/21, the spot market price (cost and freight (CFR) China, iron ore content of 62%) was still just over USD 80 per ton and thus below the average of about USD 95 per ton during the business year 2019/20. At the start of June 2020, the price of iron ore already hit about USD 100 per ton; from the middle of August through to the end of November, it fluctuated between USD 115 and USD 130 per ton. Starting in early December 2020, the iron ore price became significantly more volatile yet again, ending the calendar year at about EUR 165 per ton. This upward trend continued unabated into the new calendar year, reaching about USD 175 per ton in early March 2021— the high for the reporting period. The price had never reached this level in previous years, not even close. But now it was approaching the all-time high of about USD 185 per ton that was reached in February 2011. The steep price increase over the winter months was not just the consequence of China’s growth as a steel producer. It also resulted from limited capacity in both Australia’s and Brazil’s iron ore mines owing to unfavorable weather conditions. Furthermore, steel companies in China traditionally fill up their inventories of key commodities ahead of Chinese New Year, which drives demand yet further. At the close of the business year 2020/21, one ton of iron ore was selling for about USD 165.
Coking coal & coke
Developments in the price of coking coal during the reporting period presented a completely different picture. Coking coal is the base material for metallurgical coke that is used in blast furnaces; it also serves as a source of energy and as a reducing agent because it withdraws oxygen from the iron ore.
There are many reasons for why the price of coking coal was the diametrical opposite of that of iron ore. For one, China’s degree of self-sufficiency regarding metallurgical coal is greater than that regarding iron ore. Above all, however, the country’s very public dispute with Australia at the political level has led to restrictions on imports of Australian coal to China—in marked contrast to iron ore. Consequently, this caused the price of domestic coking coal in China to increase but initially caused the price in international markets to decrease. While the price of high-grade coking coal in the business year 2019/20 had been about USD 165 per ton on average (FOB Australia), at the start of the business year 2020/21 it was about USD 150 per ton and thus slightly lower. Toward the end of the calendar year 2020, the international price of coking coal fell to just above USD 100 per ton. This trend was not reversed until the calendar year 2021 because, beginning in the Northern fall of 2020, steel production had started to recover in other parts of the world also. After losing China as a market, Australia as the world’s largest producer of coking coal increasingly set its sights on other regions. In the short term, the price rose to about USD 155 per ton, but it weakened again subsequently, falling to about USD 115 per ton by the end of the business year 2020/21.
The expansion of China’s dominant position significantly increased the proportion of steel production based on blast furnaces relative to electric arc technology, thus changing the price ratios of key input materials in the reporting period. While the price of iron ore already rose considerably in the first few months of the business year 2020/21, comparatively speaking the price of high-quality steel scrap rose just moderately. For example, the price of steel scrap (type E3, Germany) was about EUR 210 per ton at the start of the business year and climbed to about EUR 250 per ton by the end of November 2020, which is roughly equivalent to the average price in the business year 2019/20. A sharp price increase did not occur until the subsequent months when the price skyrocketed to EUR 355 per ton in the spot market in January 2021. The price per ton of scrap continued to rise toward the end of the reporting period, ending at EUR 370 per ton.
Nickel, the most important alloy for the High Performance Metals Division in cost terms, developed along a highly volatile trajectory in recent years. Indonesia, which possesses rich sources of nickel and has banned exports of this metal so that it can process it domestically, accounts for much of this development. Besides being necessary for producing special steel, nickel is in ever greater demand also because it is necessary for producing the batteries needed in e-mobility solutions. The price of nickel at the start of the business year 2020/21 was still about USD 11,200 per ton—its lowest point—but it recovered over time. China, the world’s most important buyer of nickel, restarted its industrial production early on following its COVID-19-induced lockdown, thus further stimulating demand. In August 2020 already, nickel was trading for USD 15,000 per ton at the London Metal Exchange (LME). In February 2021, its price shot up to about USD 19,700 per ton and then fell again to just under USD 16,000 per ton by the end of the reporting period.
Zinc followed a trajectory similar to that of nickel during the business year 2020/21. Here, too, the lowest price (approximately USD 1,850 per ton) was reached at the start of the reporting period. Production interruptions at a few mines in Asia and South America offset the weaker demand year over year, allowing the price of zinc to recover. Owing to the continual increase in global steel production, however, the price rose to about USD 2,800 per ton by the end of March 2021. The development of the price of chromium, an element used in the production of tool steel, presents a more differentiated picture. Following a longer downward trend, the price did not rebound until the end of the calendar year 2020. While the price of molybdenum also trended downward in the first few months of the reporting period, the trend reversal started as early as in the Northern summer of 2020.