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Profit margins dropped to multi-year lows between May and August of this year. However, they have jumped up dramatically in the past few months, particularly in the United States. This has been fuelled by increased steel selling figures, rather than reductions in mill input expenditure.
Profit margins have been negatively affected by the growing cost of raw materials. Iron ore prices have escalated, since May of this year. Soaring demand from China was the main driver behind these increases, following the lifting of coronavirus-related restrictions in that country. Iron ore values have softened in the past month. Nevertheless, prices are likely to remain elevated in the near term.
Coking coal costs have strengthened since the summer period, when they fell to a four-year low. The demand boom in China did not have the same effect on this raw material as those witnessed for the other steelmaking ingredients. Limits on imports of coal into China have restricted the global price progression. However, steel production increases in India, Europe and the US should lead to further advances in coking coal selling values in the coming months.
Scrap costs were rising, until last month. They have since stabilised or softened slightly, and are likely to remain firm in the near term, as steel demand and capacity utilisation rates improve, particularly in Western nations.
Mill profit margins in the EU and US are expected to improve further, in the final two months of 2020. Steel price rises and relatively stable input expenditure will help the steelmakers in these regions to return to levels of profitability similar to those last recorded in early 2019. The Asian margin spread is likely to remain reasonably steady during the remainder of this year.
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