The spot iron ore price has apparently usurped the steel scrap price as the most critical indicator for forthcoming steel price changes. Fluctuations in the price of iron ore signals to those in the steel industry what may happen to the price of hot-rolled band on the world market and in some regional markets (such as China). The past few years have seen major upheavals in the iron ore market including: a) in 2010, steel mills begrudgingly switched from annual contracts to quarterly prices for iron ore (typically derived on a lagged three-month basis); and b) high iron ore price volatility. For example, the current price for 62 percent Fe sinter feed delivered to China is $155/metric ton, up from a brief-low of $87/metric ton in September 2012.
Steel mills have been acquiring and developing iron ore properties in an attempt to reduce their iron ore costs and mitigate spot price swings. Financial derivatives are increasingly being used to allow those affected by iron ore prices to somewhat hedge the risk.
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