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Integrated steel manufacturers enjoy a cost advantage
Propurchaser
Over the past four months, scrap costs have risen more than 50 per cent, prompting companies such as Nucor Corp. to raise prices and announce future increases.
It’s easy to understand why this is reasonable, at least for companies using electric arc technology to melt scrap and produce steel. Scrap accounts for more than 75 per cent of cash costs to produce finished steel this way.
However, companies like Stelco, US Steel, and Arcelor/Mittal are integrated steel producers. For them, scrap typically accounts for less than 15 per cent of cash costs. They use mainly iron ore and coke to make steel and vary the amount of scrap in a heat, depending on the economics of the day. So what’s a purchaser to do?
When scrap prices rise sharply (like right now), pushing back against steel price increases is likely to be more successful if your supplier is an integrated producer. If he’s not, this may be a good time to consider sourcing some of your requirements elsewhere.
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