Europe HRC steel spread edges down in Nov on further steel price declines

The European hot-rolled coil steel to raw materials price spread fell 0.6% in November on a continued weakening in spot steel prices and weaker iron ore and coking coal costs, according to an analysis by S&P Global Platts Dec. 1.

Spot HRC prices continued to drop after earlier record levels, while ferrous scrap costs rose last month. Iron ore and coking coal inputs retraced from recent highs, pushing down the overall cost of pig iron produced in the Europe to the lowest since January, based on major steel feedstock cost references.

The Northwest European HRC-steel raw materials spot spread fell to Eur669.35/mt ($763/mt) in November, from Eur673.54/mt in October. The spread hit a record above Eur795/mt in August, according to Platts calculations.

As the spread continued to decline since August, stronger-than-average steel prices and logistical disruptions have kept indicative available margins well above typical steel industry conditions, as tracked by Platts.

In the third quarter, the European HRC spot spread averaged at a record Eur771/mt, up from Eur695/mt in Q2, on the back of higher steel prices.

Price declines for HRC in the spot market slowed down in November. On Nov. 30, HRC was assessed at Eur967.50/mt ex-works Ruhr.

Platts Northwest European HRC prices averaged Eur995.95/mt ex-works Ruhr in November, down 3.7% from October, while prices fell 6.2% in the previous month. Monthly average pricing hit a record high of Eur1,172.64/mt ex-works in July, according to Platts assessments.

Spot prices for commodity-grade HRC are not fully reflected in sales and deliveries by steelmakers due to earlier negotiated pricing terms, and long-term contracts.

Iron ore costs

Iron ore import prices in China, used as a benchmark for global contracts, fell sharply in November as China reined in pig iron production. Prices averaged $94.97/dry mt CFR China for Platts IODEX 62% Fe fines, down 22% from October.

Spot lump ore premiums in China fell back to 14.7 cents/dmtu, or around $9.19/dmt, last month from 19.22 cents/dmtu in October.

Atlantic blast furnace contract pellet premiums were stable month on month in November at $55.50/dmt, as assessed by Platts, tracking contract premiums agreed for the quarter. Premiums fell from Q3, when Platts assessed premiums averaged $76.66/dmt.

The basket of iron ore fines, lump and high-grade product prices fell, while scrap costs delivered in Northwest Europe rose in November.

Coking coal prices on a delivered net forward basis into Rotterdam fell 10% to $388.52/mt CFR Rotterdam in November, from October’s record levels.

Premium low-vol coking coal prices net forward to Rotterdam had more than tripled since April, while tight global spot supplies from the US, Canada and Australia continued to support market pricing referenced under contracts.

Regional northern European shredded scrap prices rebounded to Eur410/mt delivered basis in November, the highest in three months and 7.9% up from October.

China, US spreads

In China, the spread between HRC export prices and imported iron ore and coking coal costs weakened slightly to $341.39/mt in November, from $349.43/mt in October

China HRC spreads are still above levels in Q1 2021 and through 2020, which were below $300/mt.

Chinese HRC export and domestic prices fell in November, while major raw materials costs dropped by a similar margin.

US HRC to Midwest shredded scrap spreads fell further to $1,353.99/st in November, from $1,509.40/st in October. Weaker US flat steel prices continued to push the metric lower, from earlier record highs.

Platts Europe HRC to raw material price spreads are indicative operating margins that do not account for inland logistical costs, power, natural gas or other blast furnace and steel-making inputs such as ferroalloys, anodes and refractories. Costs to operate sintering and coke plants are not included.

There may be further upward pressure on typical operating break-even levels at regional blast furnace mills due to higher energy, carbon permits and logistics costs.

An HRC-raw material spread of Eur250/mt is close to operating breakeven for commodity grade steel, based on operating facilities at higher capacity utilization, according to steel industry sources.

Reference break-even costs may be rising from pre-pandemic norms, as plant operating and maintenance schedules were disrupted over the pandemic, and due to volatility in production rates. In 2019, the Northwest Europe HRC spread averaged Eur241/mt.

Break-even levels in Europe are partly dependent on the mix of logistics costs and raw material configurations.

Platts European HRC spreads are based on commodity-grade flat steel specifications. Contract steel sales may have additional grade and specification-based premiums, and terms may lag spot indexes.

Producers with higher grade steel portfolios may be less exposed to commodity-grade steel margins against underlying steel raw materials costs.

— Hector Forster