In recent years, commodity prices have been heavily influenced by events such as the COVID-19 pandemic and the war in Ukraine. The start of the war in February 2022 in particular triggered a price shock for raw materials and energy sources that are important for steel production. Prices for iron ore and coking coal largely returned to normal in the 2023/24 business year. However, the overseas transportation of raw materials from Asia and Australia did not function smoothly in the second half of the business year. This was triggered by the attacks by the Houthi rebels in the Red Sea. As a result, shipping companies largely avoided the Suez Canal and chose the route around the Cape of Good Hope. This meant longer transport times and increased costs. The trend in energy prices eased increasingly in the 2023/24 business year, after natural gas and electricity prices had previously reached historic highs.
IRON ORE
Iron ore is the most important raw material for the production of crude steel via the blast furnace and direct reduction route. With the outbreak of the war in Ukraine, voestalpine had to diversify its procurement of iron ore pellets more strongly. Despite the turmoil of war and logistical challenges, Ukraine continued to be an important iron ore supplier for voestalpine in the past business year. As the traditional transport routes across the Black Sea could not be used for the most part, alternative logistics routes were in demand for the procurement of Ukrainian iron ore.
The price trend for iron ore is traditionally closely linked to the development of the steel sector in China, which is responsible for more than half of global steel production. At the start of the business year, the price of iron ore (62% Fe, CFR China) was around USD 125 per ton, but subsequently came under pressure. Fears arose that China’s struggling real estate sector could put the brakes on Chinese steel production. Accordingly, the price of iron ore approached the USD 100 per ton mark in Northern spring 2023 and subsequently fluctuated in a range of around USD 100 up to USD 125 per ton. Contrary to expectations, however, steel production in China remained high. Although other sectors were unable to compensate for the weakness in the real estate sector, China strengthened its export activities.
In Northern fall 2023, the price of iron ore also recovered due to the prospect of economic stimulus measures by the Chinese government. Towards the end of the 2023 calendar year, it stood at around USD 140 per ton. The price trend remained volatile in the fourth quarter of 2023/24. Towards the end of the 2023/24 business year, the iron ore price finally stood at around USD 100 per ton.
COKING COAL
Coking coal forms the basis for the production of metallurgical coke and is therefore an essential primary raw material for crude steel production using blast furnace technology. As a reducing agent, coke extracts oxygen from the iron ore. It also serves as a source of energy for the smelting process.
The most important supplier of metallurgical coal is Australia. Growing steel production in India in particular resulted in robust demand for coking coal in the 2023/24 business year. The expansion of coal mine capacity slowed down in light of steel manufacturers’ plans for the transformation of steel production: away from the smelting process and towards the electrification of steel production. On the supplier side, however, there are signs of increasing concentration. For example, the Swiss commodities group Glencore acquired a majority stake in the coal business of Teck Resources from Canada in the 2023 calendar year. In addition, the Australian mining group BHP intends to acquire its competitor Anglo American from South Africa.
With the war in Ukraine, global transport routes have shifted somewhat. Due to the sanctions, Russian coking coal is increasingly being delivered to Asia instead of Europe. After China had switched to American coal mines more and more in recent years due to political tensions with Australia, China increasingly imported Australian coking coal again in the 2023 calendar year. Unlike with iron ore, however, China is not such a decisive factor in the global pricing of coking coal, as it relies more heavily on domestic sources of coking coal or imports from neighboring Mongolia.
The price of coking coal (HCC Premium, FOB Australia) was around USD 300 per ton at the start of the business year and subsequently fell to around USD 225 per ton. The price of metallurgical coal remained at this level until June 2023. In contrast to iron ore, the price of coal increased continuously over the Northern summer and rose to just under USD 375 per ton by the beginning of October 2023. In the fourth business quarter, prices for coking coal fell again slightly and stood at around USD 230 per ton at the end of the 2023/24 business year.
STEEL SCRAP
High-quality scrap serves as a valuable raw material in blast furnace-based steel production and supplements the use of pig iron. In steel production in electric arc furnaces, however, steel scrap forms the main raw material basis. Steel as a material is characterized by the fact that it can be recycled again and again. Steel products that have reached the end of their life cycle are reprocessed, making steel an integral part of a circular economy. However, steel scrap is also generated during steel production and is fed back into the production process as circular scrap. High-quality scrap is also produced during steel processing, for example during stamping processes in the automotive or white goods industry.
The weak development of the European construction industry and the mechanical engineering sector resulted in subdued demand for steel in the reporting period. This also had an impact on the demand for steel scrap in Europe. Due to the slightly improved car production in Germany in the calendar year 2023, the volume of so-called return scrap developed slightly better.
The price of steel scrap (CFR Turkey) fell from just under USD 450 per ton to around USD 375 per ton in the first business quarter of 2023/24. Over the Northern summer of 2023, the scrap price fluctuated between USD 350 and USD 375 per ton. The price of steel scrap did not recover until October 2023, but remained volatile and came to around USD 380 per ton towards the end of the 2023/24 business year.
ALLOYS
Alloys are a key cost factor in the High Performance Metals Division. They are also used in steel shops as a supplement to pig iron and scrap in order to produce the highest quality steel grades.
Nickel is the most important alloying element for the High Performance Metals Division. As with many other alloys, the outbreak of the war in Ukraine resulted in massive price increases for nickel. Price volatility largely returned to normal at the start of the 2023/24 business year. The nickel price was around USD 23,000 per ton at the start of the 2023/24 business year, weakened noticeably as the year progressed and stabilized at around USD 16,000 per ton towards the end of the 2023 calendar year. In the fourth business quarter of 2023/24, the price finally fluctuated between USD 16,000 and USD 18,000 per ton.
Ferro-chrome is an alloying element that is very energy-intensive to produce. With the outbreak of the war in Ukraine, there were sharp upward swings. With the gradual reduction in energy costs, the price of ferro-chrome has fallen continuously and stabilized at a lower level over the course of the 2023/24 business year.
The price of ferro-titanium, another important element for stainless steel production, spiked at the start of the war in Ukraine, but fell significantly over the course of the 2022/23 business year. The price is now even below the level of the Northern spring 2022.
Ferro molybdenum was characterized by a completely different price trend. After an unremarkable trend in Northern spring 2022, prices jumped sharply at the beginning of 2023. As a by-product of copper mining, the price doubled within a few months compared to Northern fall 2022. Price volatility was significantly lower in the 2023/24 business year.
ENERGY
In addition to coking coal and coke, natural gas and electricity are the main sources of energy for voestalpine. Natural gas is primarily used to heat crude steel prior to further processing in the rolling mills and for the heat treatment of steel products in furnaces. Already today electricity is of central importance to the High Performance Metals Division for the production of stainless steel products using electric arc furnaces. For voestalpine’s blast furnace-based steel sites in Austria, the metallurgical gases produced are converted into electricity internally. They are therefore largely energy self-sufficient in terms of electricity.
As with raw materials, the start of the war in Ukraine also led to massive price distortions on the energy markets. The price of natural gas multiplied with peaks of over EUR 300 per MWh (spot market THE Settlement, Germany) and the price of electricity with peaks of around EUR 500 per MWh (spot market EXAA AT Base). The spot markets calmed down considerably in the final quarter of the 2022/23 business year. This continued unabated over the course of the 2023/24 business year. The escalation of the conflicts in the Middle East in the Northern fall of 2023 did not have a significant impact on natural gas and electricity prices.
At the start of the 2023/24 business year, the price of natural gas was around EUR 50 per MWh and fluctuated in a range between EUR 25 and EUR 50 per MWh over the rest of the business year. This means that prices are even below the level before the outbreak of the war in Ukraine.
The gas supply in Europe has meanwhile eased considerably as a result of decreased gas consumption and the conscious diversification of gas supply sources, which has reduced dependence on Russia. For strategic reasons, voestalpine is nevertheless holding on to its own gas storage capacities, which has been contractually secured in May 2022 in order to secure the gas supply, particularly at the Austrian sites. Should the external supply fail, full operation can be maintained for a period of three months with an existing reserve of 1.5 TWh of natural gas. Limited operation is possible for a correspondingly longer period, depending on the respective production process.
The price trend for electricity in the 2023/24 business year was similar to that for natural gas. At the start of the business year, the price of electricity was just over EUR 100 per MWh. As the year progressed, it fluctuated between EUR 75 and EUR 100 per MWh before falling further in the fourth business quarter of 2023/24.
