Independent producers in Brazil use charcoal in the pig iron production process.

In 2017, Brazil exported around 2.3 million tonnes of pig iron, according to the International Steel Statistics Bureau (ISSB). Only 550,000 tonnes of this were exported from northern Brazil, while almost 1.8 million tonnes were shipped from southern Brazil, an industry source said.

This year, exports from the south are expected to increase to more than 2.5 million tonnes, while shipment volumes from the north should stabilize at around 500,000 tonnes.

“In the south, where forests are available [for charcoal-making], a recovery is already happening,” the industry source said.

Northern Brazil, meanwhile, has had to reduce its export volumes because of the sale of eucalyptus forests to the pulp industry.

“Companies in both regions were selling forests, but in the south there are more independent farmers who planted eucalyptus forests as an investment,” the source told Metal Bulletin.

There were 17 pig iron producers in northern Brazil in 2008, but of these only Viena Siderúrgica is still exporting. The company has an advantage because of its continuous investment in reforestation projects.

Sector decline
Unfavorable circumstances in the export markets and a deep recession in the Brazilian economy have forced pig iron producers and independent eucalyptus farmers to sell their plantations to the pulp industry. But this was not the first crisis the sector has faced.

In 2009, independent pig iron producers in the country cut their export volumes to only 3.16 million tonnes, while in 2008 they had shipped 6.3 million tonnes to external customers, according to ISSB data.

The reason behind this was the dramatic decline in demand worldwide created by the global financial crisis.

The United States, which is the largest global consumer of merchant pig iron, reduced its import volumes by almost 50% in 2009 to 2.42 million tonnes.

The collapse in demand triggered a slump in prices. Metal Bulletin’s average price assessment for Carajás-origin pig iron exports in 2009 fell to $312.87 per tonne fob, from $693.73 per tonne fob in 2008. Over the same period, the average price assessment for Minas Gerais-origin pig iron exports slumped to $284.14 per tonne fob, from $566.91 per tonne fob.

And since 2011, Brazilian exporters have been constantly losing share in the US import market to Russian and Ukrainian suppliers.

In 2011, Brazil’s share of pig iron imports into the US was 54%, but by 2017 it had fallen to 18%, when Brazil shipped only 1 million tonnes. In contrast, in 2017 Russia held 56% of the US pig iron market with 2.9 million tonnes shipped, while Ukraine had 25%, shipping 1.3 million tonnes.

Last year, 45.5% of Brazilian pig iron exports went to the US, but the sole exporter in northern Brazil shipped more than 92% of its output to that destination.

“There were periods with prices below $200 [per tonne] fob which reduced Brazilian producers’ competitiveness,” the source told Metal Bulletin. “Most consumers in the US require [pig iron with a] maximum 0.10% of phosphorus, which is more expensive to produce.”

This the reason why Brazilian suppliers have started gradually to increase their sales to other markets - such as Europe, Asia and Latin America – which are less strict in their requirements. In 2016, the share of Brazilian exports going to the US fell to 36% from 58% in 2015. In 2017, it was 44%.

Positive changes
“Pig iron prices delivered in Nola [the Port of New Orleans in the southern US state of Louisiana] have more than doubled since January 2016 and, with [the new US import tariffs on steel under] Section 232 [trade legislation], they may remain strong,” a source said.

Metal Bulletin’s average price assessment for Carajás-origin pig iron exports in January 2018 reached $390 per tonne fob, while in January 2016 it had been $181.25 per tonne fob. The corresponding assessment for Minas Gerais-origin pig iron went up to $367.50 per tonne fob this January from $171.25 per tonne fob in January 2016.

Meanwhile, pig iron demand in the US rebounded in 2017 and reached 5.13 million tonnes, a record high since 2007.

And the country’s demand for pig iron is expected to increase further because of the Section 232 tariffs, by another 1-2 million tonnes, according to some industry estimates.

These better market conditions allowed Brazilian producers to raise their capacity utilization rates back above 50% in March 2018, a source said, compared with 46% in 2017 and 36% in 2016.