2020 PREVIEW: Five factors the CIS pig iron export market will face
A number of factors came together in the second half of 2019 to create a situation of high volatility in the market for pig iron exports from the Commonwealth of Independent States, which covers almost two-thirds of global exports.
On one hand, weaker prices for finished steel products and scrap put pressure on the pig iron market, while on the other hand suppliers redirected pig iron away from the market for their own use, and a new large consumer, China, joined the market.
Taking into account the rapidly changing trading conditions, Fastmarkets looks into five key factors that are likely to affect the CIS export pig iron market in 2020.
1. Sales volumes will continue to fall
Over the first nine month of 2019, the combined pig iron exports from Russia and Ukraine went down by 19.64% to 5.3 million tonnes, compared with 6.6 million tonnes in the corresponding months of 2018, according to data from the International Steel Statistics Bureau (ISSB).
This year, that reduction is expected to continue, Fastmarkets understands.
“The main factor which will affect the market this year is the redirection of merchant pig iron volumes to the internal needs of key suppliers,” one pig iron exporter from the CIS said.
Tula Steel, a partner project of Russian group Industrial Metallurgical Holding (IMH), which runs pig iron producer Tulachermet, came into operation in July 2019.
“Production volumes of merchant pig iron will depend mainly on the market price [in 2020],” a source inside IMH told Fastmarkets. “According to current estimates, our pig iron export volume will be 500,000-600,000 tonnes in 2020, while previously we used to export around 2 million tonnes per year.”
Fastmarkets’ average price assessment for high-manganese pig iron, export, fob main port Black Sea, CIS, was $322.63 per tonne in 2019, dropping from $373.47 per tonne in 2018, because of the soft pricing in the finished steel and scrap markets.
But Tulachermet may restart its blast furnace (BF) No1, with capacity for 1.25 million tpy, and thus increase merchant pig iron availability. The BF was originally halted for an overhaul in late 2008.
Tulachermet currently runs only two similar furnaces – the 643,000-tpy BF No2 and the 1.495 million-tpy BF No3.
“We can relaunch BF1 because at some point we will have to shut down BF2 for maintenance for 6-9 months,” the company source said. “Obviously, we have an option to run with only BF1 and BF3, or with all three furnaces together, or with just one furnace [depending on the market situation].”
Also in Russia, one international trader said that: “Metalloinvest’s pig iron shipments will go down in 2020 because it commissioned two new furnaces in 2019 and now can increase the pig iron content in its own steel-melting.”
Metalloinvest replaced two electric-arc furnaces (EAFs) at its Ural Steel asset with flexible modular furnaces (FMFs) in 2019. FMF No2 was commissioned in March 2019 and FMF No1 in the following September. The combined capacity of the two new furnaces surpasses 2.2 million tpy, which is roughly equal to the steelmaking capacities of the former EAFs.
The furnaces use technology which provides flexibility in the use of hot metal, pig iron, hot briquetted iron (HBI) or steel scrap, and offers the possibility of increasing the percentage of hot metal in the charge to 85%, according to Metalloinvest.
The company did not disclose the percentage of hot metal used in steel melting at Ural Steel before the EAFs were replaced.
Still in Russia, pig iron shipments from Novolipetsk Steel (NLMK) will depend on market fluctuations, according to Grigory Fedorishin, the company’s president and chairman of the management board. “We have excess pig iron capacity. If the market conditions are favorable, we can ship [more] pig iron,” he said.
In January-September last year, NLMK shipped just 257,000 tonnes of pig iron, according to the company’s latest operational report. That was less than half the volume over the corresponding period in 2018, when sales came to 610,000 tonnes.
Meanwhile, in Ukraine, steelmaker Metinvest is planning to cut its pig iron shipments by about 200,000 tonnes this year compared with 2019, the company has said.
Over the first nine months of 2019, Metinvest shipped 1.4 million tonnes of pig iron. This was a drop of 653,000 tonnes (or 32%) compared with the same period in 2018, when shipments totaled 2.1 million tonnes, according to the company’s most recent financial report.
Metinvest completed the initial construction stage of a new continuous casting machine (CCM) at its Ilyich Iron & Steel Works in Mariupol in late 2018, and the equipment was operating at design capacity in 2019.
2. Continued demand in China
Demand for imported pig iron increased in China in late September 2019 because of the material’s price competitiveness.
Pig iron imports into China increased to 678,078 tonnes in January-November 2019, from only 92,899 tonnes in the same period of 2018, according to customs data obtained via ISSB and Steelhome.
But the demand growth in China was probably even more impressive, although this was not yet reflected in official statistics because the material arrived late in 2019 or early in 2020. In late October and into November, China bought as much as 500,000 tonnes from the CIS and Brazil, sources have estimated.
“There is a feeling that the Chinese [import pig iron] market will grow further [because of the country’s] ecological initiatives, and it may overtake the United States [in terms of pig iron purchases],” one Russian exporter said. “China will continue to buy pig iron [in 2020], if the price for iron ore is higher than $70-80 per tonne and the pig iron price is more or less the same.”
In the fourth quarter of 2019, when China was actively purchasing pig iron, the average of the index for iron ore 62% Fe fines, cfr Qingdao, was $88.97 per tonne.
This figure was down from $102.03 per tonne in the third quarter, the highest level for five years, but was still well above the annual average for 2018, which was $69.70 per tonne.
Meanwhile, Fastmarkets’ average price assessment for high-manganese pig iron, export, fob main port Black Sea, CIS, was $295.08 per tonne in the fourth quarter of 2019. The freight rate from the Black Sea to China was close to $32-35 per tonne, sources estimated.
3. Effect of upstream, substitute products
The global pig iron market, and the export market from the CIS in particular, is expected to be strong in the first quarter of 2020. But sources said that it may begin to weaken from the second quarter due to possible price reductions in iron ore, which is the feedstock for making pig iron, and in scrap, which is a relative substitute for pig iron in steel melting.
“We expect that, in the second quarter, a decline in iron ore prices will start, because iron ore is overpriced [compared with steel products] and [major producer] Vale will start to increase its sales,” one international trader said.
“Normally,” another trader said, “the price of scrap is strong over the winter because of lower scrap collection, and starts to reduce in the spring, and that can negatively affect the pig iron market.”
But another source said that he would not consider scrap to be a key factor for the pig iron market because the price trends for upstream products were more important.
“If we talk about upstream products, the prices of coking coal and coke are even more important than the price of iron ore, because they have a larger effect on production costs than iron ore,” he said.
4. Higher demand
“One of the main factors that will support the pig iron market in 2020 is that Republicans [the political right wing in the US, and its sympathizers] continue to support the development of the [steel] industry in the US. That has led to investments in new EAF-steelmaking projects in the country,” a source said.
EAF-based steelmakers are the main consumers of imported pig iron in the US.
North Star BlueScope is planning to start a third EAF and to boost melt capacity at its mill in the US state of Ohio by as much as 900,000 tpy by 2021.
Big River Steel intends to add a second EAF, with capacity for 1.5 million tpy, at its Arkansas site by the fourth quarter of 2020. The company is also considering the possibility of building a second flat-steel mill in Texas.
JSW Steel plans to add a second 1.5 million-tpy EAF at its Ohio mill. Details of the project have not yet been fully fleshed out, but the projected start date is in the second half of 2020.
Steel Dynamics Inc plans to build a new EAF-based flat-steel mill in Texas. Construction is expected to begin early this year, with operations to begin in mid-2021. The steelmaking capacity will be around 2.7 million tpy, Fastmarkets understands.
And Nucor plans to double its hot-rolled steel capacity to 3 million tons (or around 2.7 million tonnes) per year, from the current 1.6 million tons, by mid-2021 at its mill in Galattin, Tennessee. To increase HRC output, Nucor will revamp the meltshop and increase steel melting at the site, Fastmarkets understands.
Demand growth is expected to be boosted by further ecological initiatives, “which will lead to higher investment attractiveness into EAF-based steelmaking, especially in the US and China,” a source said.
5. Internal market in the US?
The US continued to be the largest consumer of seaborne metallics in 2019, while its domestic market was almost non-existent.
In January-September, the US imported 4.1 million tonnes of pig iron, slightly down year on year from 4.3 million tonnes, according to ISSB. In 2018 in total, imports exceeded 6 million tonnes.
But the situation may change in 2020 because several producers intend to start pig iron and HBI sales to local customers, to substitute for imports.
Canada’s Stelco plans to build a pig iron plant with capacity for 1 million tons per year (around 900,000 tonnes per year) at its Lake Erie Works in Nanticoke, in the Canadian provice of Ontario. But the volume it will supply to the market will be less than that because it will divert only some liquid metal from the blast furnace to the pig iron caster.
The facility is expected to be completed in the second quarter of 2020, with shipments scheduled to begin in the third quarter.
The company is already searching for customers, sources told Fastmarkets.
Cleveland-Cliffs is planning to sell pig iron from the recently purchased AK Ashland Works in the US state of Kentucky. The blast furnace at the site has capacity for 2.3-2.7 million tpy but has been idle since late 2015.
“The steel industry in the US doesn’t feel very healthy at the moment, and pig iron-making projects require massive investment, so it is a question of whether companies will be able to move forward with projects or not,” an international trader said.
“Even if these projects come to fruition,” he added, “the competition with imports will be not so tough as it could be, because the largest merchant pig iron consumers are located in the south [of the US], where imports arrive at ports, while the US pig iron projects are in the west and should find customers there. Otherwise, inland transportation costs will kill the profitability.”
The pig iron suppliers in the CIS, which are responsible for almost three-quarters of imports, will be not be significantly affected if a local market develops in the US, because major pig iron exporters “have much less material to sell now due to our own higher needs,” a supplier from the CIS said.
New Zealand-based Petmin USA is also planning to build a pig iron manufacturing plant in Ohio, which could be operational as early as 2021.
The pig iron capacity of this plant is estimated at 425,000 tpy, although the company has said that it will make high-purity nodular pig iron, which is used by foundries rather than by steelmakers.
Cleveland-Cliffs expects to start commercial production of HBI in the first half of 2020 at its plant in Toledo, Ohio. The facility has capacity for 1.9 million tpy of HBI, but one pig iron buyer in the US has said that the start-up of the asset is likely to have more effect on the prime scrap market than on imports of pig iron.