How Do Steel Industry Indicators Look amid 1Q16 Earnings?
Rising scrap prices
Steel imports can either be in the form of semifinished, finished, or value-added steel products. Ingots, slabs, blooms, and billets form part of semifinished steel products. These products have to be further worked on before end consumers can use them.
ArcelorMittal (MT) imports semifinished steel slabs to the United States (IVW) from its facilities in Brazil. This semifinished steel is then used as a raw material for its Calvert facility, a steel plant located in Alabama.
Raw material prices
Steel scrap prices have risen sharply this year, as can be seen in the graph above. This has made using alternate raw materials more economical for steel companies. Imports of blooms, billets, and slabs rose by more than 170% month-over-month in March. Higher scrap prices could be the reason behind more semifinished steel imports.
Furthermore, higher imports of these products are associated with rising domestic steel production. Ultimately, these semifinished products will be further processed by US steel companies. In a nutshell, more imports of these products can be positive for US steel companies.
Impact on steel companies
As raw material prices, including iron ore and coal, have firmed up over the last couple of months, integrated steelmakers could be in play now. Companies like U.S. Steel Corporation (X), ArcelorMittal, and POSCO (PKX), which also have backend integrated iron ore mining operations, would stand to gain from higher raw material prices. However, AK Steel (AKS), which sources iron ore from third parties, could see its unit production costs rise in line with rising iron ore prices.
One of the factors driving steel and iron ore prices has been the buoyancy in the Chinese steel industry. In the next part of this series, we’ll explore some of the recent indicators of the Chinese economy.
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