Steel First has introduced a new Stainless Steel 304 Europe Raw Materials Index to its pricing portfolio. The index represents the cost of the raw materials needed to produce the steel alloy. The index models the components of a typical slab from European producers, and measures the price of the raw materials needed to melt stainless steel of grade 304 in Europe.
The index uses industry-wide acknowledged price sources and state-of-the art index methodology. It does not contain production costs itself, nor the producer’s margin nor any processing costs of the final material. The index is updated weekly on Mondays and published in the Steel First prices database. Historic data of the index is available dating back to 2010.
Slab recipe
Steel First sister company Metal Bulletin teamed with Mecore, a Munich-based consultancy, to develop the Stainless Steel 304 Europe Raw Materials Index. The index is calculated on the weighted slab components of the corresponding stainless grade. The weights are determined from the region’s average slab recipe. The specification of each raw material consists of the average chemical analysis, the metallic yield and the relative amount in the overall slab. The slab composition was developed by obtaining recipes from primary market participants in the European stainless steel market. The recipes were averaged and recipes with raw material components that deviate more than one standard error from the median component were excluded. While the slab recipe determines the physical composition of the produced stainless steel grade, the price is determined by Metal Bulletin’s raw component prices. The prices used are Metal Bulletin standard prices.
Index-based stainless price hedge
Looking at the history of the index, compared with nickel prices which are commonly used as a proxy-hedge by participants in the stainless steel market, shows two things: First, they correlate strongly but this correlation changes over time. The average weekly volatility of the nickel price changes is 29.37%, while that for the index is 19.96%. Lower volatility leads to lower mark-to-market changes. Furthermore, nickel’s forecasting ability of weekly prices is 204 basis points lower than that of the index. Thus the index compared with nickel alone yields a much closer track of the market risk included in stainless steel production.
About Steel First and Metal Bulletin
Steel First, part of Metal Bulletin, is an online, global news and pricing service for the steel industry, covering raw materials, steel products and end-user industries. Steel First publishes pricing information for over 250 steel products and raw materials, including coking coal and iron ore. For more information visit www.steelfirst.com.
Metal Bulletin is the established leader in metals and minerals reporting. It has been reporting on steel markets and steelmaking raw materials, including iron ore, coking coal and ferrous scrap, since the first print issue of the magazine was published in May 1913.
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Metal Bulletin Limited is a wholly-owned subsidiary of Euromoney Institutional Investor Plc.