Ruggero Alocci from Italian raw material and steel trader company Alocci Rappresentanze Industriali has said that the London Metal Exchange's (LME) official steel billet prices can be useful as a tool to monitor the trend of scrap prices and to possibly foresee future trends.
Speaking at the SteelOrbis Fall '10 Conference and 63rd IREPAS Meeting, Mr. Alocci said that he came to the above conclusion following an examination of the LME steel billet futures contract, based on the ISRI HMS I/II 70:30 ferrous scrap grade (the most commonly used in rebar production and the most widely traded globally), the standard one million mt EAF-based steelmaking plant, operating with continuous casting and hot rolling mill for rebar production, located in an advanced economy, having high productivity and flexibility, with expensive labor and electric power costs, and with a 500 km sourcing range for ferrous scrap, and finally on historical monthly prices from 2000 to 2007.
Based on historical statistics, Alocci suggested, and based on current transformation costs of ferrous scrap into billets by the EAF process, ferrous scrap could represent 62-65 percent of the value of steel billet. Thus, if the price of LME billets is $500/mt, for the sake of example, then the price of HMS I/II scrap delivered to furnaces would be around $310-325/mt.
In the same way and using other historical data, according to Ruggero Allocci, the standard difference between LME billet quotations and 16 mm rebar prices could be estimated at around $59-63/mt. Thus, if the LME billet price is $500/mt, then the price of 16 mm rebar ex-works would be around $559-563/mt.