London — European hot-rolled coil steel to raw material price spreads turned sharply higher in September, to average Eur252.89/mt ($297/mt) as a rise in spot steel prices outpaced a rise in coking coal and iron ore, according to S&P Global Platts estimates Oct. 1.
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The Northwest European HRC steel to raw materials spread averaged Eur208.50/mt in August and Eur194.50/mt in July, Platts estimates showed.
The rise in HRC spreads has led the gage to pass expected break-even for regional steel plants' production of commodity grade steel.
However, the indicative margin may remain below expected profitability after accounting for lower capacity utilization in the past few months than typical, with EU mills running at lower pig iron and steel rates than in 2019.
Break-even operating costs are typically close to equivalent steel-to-raw material spreads of Eur250/mt for Northwest European steel producers.
That is based on typical productivity levels of 80%-90% as seen in 2019 before COVID-19 restrictions hit steel orders and demand.
A rise in HRC spot prices through August and September helped absorb higher raw materials costs, as the HRC neared Eur500/mt ex-works Ruhr by the end of September.
The Northwest Europe HRC-raw materials spread averaged Eur219/mt in the third quarter, down from Eur224.66/mt in Q2 to the lowest quarterly average in at least four years.
Northwest European HRC spreads averaged Eur253/mt in Q1, below Eur229/mt in Q4 2019 and Eur236/mt in Q3, as steel mills faced tighter operating margins since 2018.
Iron ore prices in China, used as a benchmark for contracts, remained high in September, up 1.2% month on month to average just under $124/dry mt CFR China.
Coking coal prices delivered into Rotterdam rebounded in September as spot buying in China and India continued during a restock off contracts in other regions.
The reference premium low-vol coking coal index delivered to Europe rose 12% month on month to average $134.66/mt CFR Rotterdam in September.
Platts steel-to-raw material price spreads are indicative margins that do not account for inland logistic costs, power, natural gas or other blast furnace and steelmaking inputs such as ferroalloys, anodes and refractories.
Break-even levels in Europe are partly dependent on logistics costs and raw material configurations.
Regional Northern European shredded scrap contract prices rose further in September.
Platts European HRC spreads are based on commodity-grade flat steel specifications.
Contract steel sales may have additional grade and specification-based premiums, and terms may lag spot indexes.
Producers with higher grade steel portfolios may be less exposed to commodity-grade steel margins against underlying steel raw materials costs.