2017 REVIEW: CIS pig iron export price gains outpace costs
Pig iron exporters from Russia and Ukraine managed to achieve price growth above that of raw material costs in 2017, supported by more buoyant global final steel product markets.
But amid firmer prices, Ukrainian exporters had significant operational challenges over the year due to the military conflict in the east of the country, where some pig iron production assets are located.
By mid-December, annual average export prices for high-manganese pig iron from the Commonwealth of Independent States (CIS) region had gone up by 35.6% year on year to $331.39 per tonne fob Black Sea in Metal Bulletin’s latest assessment. Meanwhile, Russia-origin low-manganese pig iron price jumped by 36.5% compared with the annual average price in 2016, to $79.61 per tonne fob Baltic Sea.
The average price in 2017 for iron ore 62% Fe has increased by 22.2% to $71.32 per tonne cfr China compared with 2016. Meanwhile, the average price for hard coking coal increased by 23.8% year on year to $167.49 cfr Jingtang.
In Turkey, the world’s largest ferrous scrap importer, the annual average scrap price increased by 27.9% year on year to $301.34 per tonne for an 80:20 mix of No. 1 and No. 2 heavy melting scrap from the United States. Scrap is used as a substitute for pig iron in the steelmaking process.
In 2017, there were three distinct waves of pig iron price rises.
The first began in February amid an increase in scrap prices. And for high-manganese pig iron suppliers, that rally stopped in mid-March when the two largest pig iron exporters from Ukraine - Metinvest and Donetskstal (DMZ) - were forced to exit the market due to a lack of iron ore and coking coal supplies caused by illegal blockades on the region’s railway lines.
But prices for low-manganese pig iron supplied by Russia’s Tulachermet continued to grow amid poor availability of material from Ukraine. In mid-April the price reached an average $420.50 per tonne fob Baltic Sea, a record high for 2017.
The second price wave began in July and lasted until early August, driven by the wave of price rises across the spectrum of products - including raw materials and finished steel.
The third wave began in November and has continued into December on increases in coking coal and scrap prices, as well as higher demand before the Christmas holidays.
The troughs between those three waves were driven mainly by a downtrend in the raw materials and scrap markets.
Metal Bulletin’s export price assessments for high- and low-manganese pig iron from the CIS region averaged $357.50 per tonne fob Black Sea and $377.50 per tonne fob Baltic Sea, respectively, on Thursday December 14, against $297.50 and $340 per tonne fob on the corresponding date in 2016.
Over January-September, CIS producers exported roughly 5 million tonnes of pig iron. That was 11% lower than shipments over the same year-earlier period. The decline was triggered to a large extent by a reduction in exports from Ukraine.
In February, Ukraine’s two key pig iron exporters faced a raw materials shortage created by the blockade of a railroad in the east of the country. Later that month, DMZ halted production. Those assets were reportedly seized by pro-Russia rebels who restarted production in May, allegedly using raw materials from Russia.
DMZ started pig iron exports through Russian ports, sources said. Turkish trades were heard to buy pig iron from DMZ, considered by the market participants to be “illegal,” due to its lower price compared with official pig iron from the CIS region.
The key market for the CIS pig iron exporters continues to be the US. Over the first nine months of this year, suppliers shipped more than 3 million tonnes of pig iron to the country - almost 65% of total exports. Shipments from Russia to the US increased by 21%, while from Ukraine exports ramped up by 46%. Producers have redirected volumes from other outlets to fulfill orders from the US buyers.
Growing spread between pig iron and slab
The gap between pig iron and slab prices reached a five-year high in October. Metal Bulletin’s monthly average price assessment for high- and low-manganese pig iron from the CIS region was $333.75 per tonne fob Black Sea and $378.75 per tonne fob Baltic Sea, while the average monthly price assessment for CIS export slabs was $495 per tonne fob Black Sea.
The difference between these assessments was, at that time, almost $160 per tonne and $115 per tonne - the largest gap since July 2012, when it was more than $180 per tonne and $140 per tonne, according to Metal Bulletin data.
As a result, Metinvest, the largest pig iron supplier from Ukraine, decided to redirect more than 100,000 tonnes of pig iron production towards the production of merchant steel slab.
On December 18, the spreads between high- and low-manganese pig iron prices and slab prices were $150 per tonne and $130 per tonne respectively.