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WSD Strategic Insights CLXXV: Three International Bellwether Prices

Tuesday, 21 November 2023 21:35:58 (GMT+3)   |   San Diego
       

Two of these are steel prices:  The HRB export price and the coking coal price (FOB Australia).  The HRB export price impacts the non-Chinese market for steel sheet products.  (An argument could be made at present that the Chinese domestic price – given its influence on China’s export prices and, in turn, the latter’s influence on the HRB export market – is, in fact, the “bellwether.”)  The coking coal price impacts the production cost of the major Pacific-Basin (as well as Indian and European) integrated mills that “set the market” for most non-protected regions (as well as the protected ones assuming a lag).  Its impact on production cost has far outweighed the impact of the iron ore price, delivered to China, in the past twelve months. The third price is the price of crude oil that hugely influences energy investment and related steel demand, as well as the pace of inflation globally, directly and indirectly:      

1. The HRB export price is the “mother of all flat-rolled steel products.”  When the HRB export price swings, it impacts, usually with a lag, the HRB price in many home markets; and, as well, it impacts the prices of products made from hot-rolled band.  It also impacts steel slab prices – that normally sell at roughly a $100 per tonne discount to the HRB export price.  The HRB export price, relative to the mills’ production cost, is a strong indication of the profitability of international steelmakers. 

Global production of flat-rolled steel products including plate is roughly 688 million tonnes per year.   Flat-rolled steel products, including plate, account for roughly 55% of total global steel product exports each year of about 455 million tonnes, and about 67% when including semi-finished steels.

Premium Coking Coal price swings often precede changes in the prices of products produced via the Integrated steelmaking process, especially flat steel product prices outside of China. Volatility in coking coal prices has been especially severe the past few years since the onset of the Russia/Ukraine war, with supply re-shuffling, extreme weather events, and lack of investment in incremental capacity wreaking havoc in the marketplace.

About 785 million tonnes of coking coal is consumed globally each year, with about 535 million tonnes in China and another 250 million in the Rest of the World.  Coking coal global trade is about 100 million tonnes per year. 

2. The Brent crude oil price impacts drilling activity, line pipe construction and the economic growth rate of oil-producing countries – particularly in the Middle East.  Oil production in the Middle East North Africa (MENA) is about 30 million barrels of oil per day; hence, a $10 per barrel price swing impacts revenues by $146 billion annually. At $60 per barrel, MENA’s gross revenues are about $875 billion per year.  In comparison, MENA’s GDP is about $4 trillion per annum versus $25 trillion for the USA, $17 trillion for the European Union and $18 trillion for China.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This report includes forward-looking statements that are based on current expectations about future events and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict.  Although we believe that the expectations reflected in our forward-looking statements are reasonable, they can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including among other things, changes in prices, shifts in demand, variations in supply, movements in international currency, developments in technology, actions by governments and/or other factors.

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Copyright 2023 by World Steel Dynamics Inc. all rights reserved

 


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