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The spread between European hot-rolled coil steel and raw material prices rebounded in November from October’s low, aided by higher spot steel prices and lower coking coal costs.
HRC prices recovered in November from a three-year low to ease cost pressure for steel margins while a stronger euro aided costs, according to a Dec. 7 analysis by S&P Global Commodity Insights.
The Northwest Europe HRC steel-to-raw material spot spread widened to average around Eur306/mt ($331/mt) in November, from Eur261/mt in October, according to S&P Global estimates.
A regional European steel mill’s breakeven level may be considered at spreads of around Eur250-Eur300/mt, depending on specific individual sites and cost structures.
In November, the euro strengthened to average $1.08 to the US dollar from $1.06 in October, easing costs for dollar-denominated raw material imports.
Platts, part of S&P Global Commodity Insights, estimated the Northwest Europe HRC spread at an average of Eur345/mt in Q3, down from Eur470/mt in the second quarter and Eur421/mt in Q1.
Even with the recovery in November, Northwest Europe HRC spreads this year remain narrower than the Eur520/mt average in 2022 and Eur636/mt in 2021, when steel pricing and spot demand was stronger.
The EU steel industry’s pig iron production was 10.5% lower on the year in October, the latest month of data available. European output remains affected by stoppages at blast furnaces undergoing maintenance and on weaker demand, according to analysis using World Steel Association data.
S&P Global tracked inputs using major steel feedstock cost references, including a basket of iron ores with high-grade fines, lump and pellets typically consumed by regional blast furnaces in Germany, France and other regional EU markets.
HRC prices
Platts assessed HRC prices at an average of Eur655.45/mt ex-works Ruhr in November, up 6.9% from October, and at Eur680/mt ex-works Ruhr Dec. 6, S&P Global data showed.
Iron ore import prices in China, used in global contracts, increased in November to $130.46/dry mt CFR China for benchmark Platts IODEX 62% Fe fines, 9.7% stronger on the month.
Spreads between 62% Fe and 65% Fe fines widened over November to average $11.20/dmt, from $9.01/dmt a month earlier.
Spot lump ore premiums in China slipped in November to 21.74 cents/dmtu on average. The lump premium was equivalent to about $13.59/dmt for the 62.5% Fe grade, down 6.4% from October.
Platts assessed the Atlantic blast furnace contract pellet premium in November at $36.50/dmt, down $1.50/dmt from October, based on premiums applied to 62% Fe fines index terms, S&P Global data showed. The assessed premium tracked further settlements and price indications for Q4 contract premiums and adjusted pricing terms with spreads.
Coking coal prices on a delivered net forward basis into Rotterdam in November dropped 9.7% to $336.53/mt CFR NW Europe, based on transactions at lower prices. This followed earlier stronger repeated restocking, demand in India which petered out.
The majority of HRC produced in Europe is from integrated mills using iron ore and blast furnace production, rather than typically lower emissions-intensive electric arc furnaces. Italy’s Arvedi and ArcelorMittal’s Sestao plant in Spain produce flat steel via EAFs, with limited EAF-based emissions reduced volumes from SSAB and Salzgitter also being offered in low volume.
Regional northern European shredded scrap prices increased 1.5% to Eur345/mt on a delivered basis in November.
S&P Global’s 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 steelmaking inputs, such as ferroalloys, anodes and refractories. Costs to operate sintering and coke plants are not included.
Typical operating breakeven levels at regional blast furnace mills may see further pressure from higher energy, carbon permit and logistics costs.