During the "New Horizons in Steel Markets" 10th Annual Conference organized by SteelOrbis in Istanbul on November 19, during a discussion panel regarding raw material costs and alternatives for steel producers, Murat Demirci, ferrous material procurement director at Erdemir Group, stated that, as regards iron ore, countries in the West operate with contracts and, since small and medium-sized steel companies in China have no regular customers, they buy raw materials from the spot market. As for the coming period, he said he believes iron ore prices will be in the range of $45-50/mt, though others have predicted that prices will fall as low as $40/mt.
The Erdemir official stated that he does not agree with the idea that, with the aim of eliminating other competitors, the four major global miners are reducing costs and increasing supply, but instead elimination of competitors is a natural result of the reduced costs and increased supply. He stated that the real problem for the miners is to provide cash flow for financially-planned projects.
According to Demirci, iron ore prices, which are foreseen to be in the range of $45-55/mt for 2016, are predicted to increase gradually during the 2017-18 period amid the more rapid economic growth anticipated after 2016. Although iron ore prices are at very low levels, this situation is not profitable for 90 percent of steel companies because finished steel prices remain below production costs.
Commenting on the latest situation in the scrap market, Mr. Demirci said that for the last two years Turkish mills have turned to the Baltic region as an alternative to US suppliers, and thus have managed to restrict prices in the US market. “There are two significant reasons for the fall in scrap prices this year; one is the EAF-based producers’ purchases of billet from China to bring prices to workable levels and the other is that producers have been combining pig iron and HBI as an alternative raw material,” said the Erdemir official. He went on to say that the EAF-based producers have been very successful with these raw material strategies, adding that mini-mills in the US this year had a $30/mt cost advantage compared to integrated producers as of the end of the third quarter.