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Hammersmith, United Kingdom based information service provider Kallanish Commodities says the price differential between ferrous scrap and iron ore has hit a record level in August 2017.

The firm says that in mid-August, the cost of imported, blended No. 1 and No. 2 heavy melting steel (HMS) shipped to Turkey “settled at almost $370 per metric ton CFR (cost and freight).” That represented a figure $293 higher than “the current transaction levels for iron ore [62 percent iron] imported into China,” says Kallanish.

That $293 differential checks in at more than $15 above the previous record level registered in May 2016, which was $277, according to Kallanish’s research.

The U.K. research house says that unlike the May 2016 situation, when the market reacted rapidly to the differential with a quick $100 per ton drop for scrap, “This year the fundamentals supporting the raw material prices seem to be stronger (both for scrap and iron ore).” However, adds Kallanish, “such a high differential is set to hit significantly the profitability and competitiveness of electric arc furnace (EAF)-based producers, forcing the scrap market to correct sooner rather than later.”

The analysis also refers to “steel prices globally [that] are continuing to recover, with increases registered across the globe, from Chinese hot-rolled coil to Brazilian flat products.” Adds Kallanish, “The market is set to enter the last month of the third quarter in high spirits [and while the fourth quarter] will bring mixed signals, a real decline in prices is not yet expected, and producers could well be able to end the year with selling prices [that are] firm.”

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