FEATURE: Brazilian, CIS producers seek options in weak pig iron market

Brazilian and CIS pig iron producers are looking to adjust their output and marketing strategies in response to the current challenging market conditions.

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The pig iron industry, hit by weak demand and depressed prices in recent years, is set to face another blow when US steelmaker Nucor commissions its 2.5 million-tpy DRI plant in Louisiana state late this year. The new supply of DRI in the market is likely to reduce Nucor’s need to import pig iron and other scrap substitutes. 

CIS producers do not expect to be significantly affected by Nucor’s DRI plant, as they mainly export to local markets in Northern Europe and the Mediterranean.

This is also the case with Ukraine exporters, which rely more on sales to Turkey and Italy than to the US market.

In Russia, pig iron producers also export to nearby regions, but could soon turn more strongly to domestic markets as the number of mini-mills able to consume scrap and scrap substitutes is set to soar this year.

But end-user demand in Europe, particularly in the southern parts of the continent, remains thin.

With falling iron ore and scrap prices, CIS-origin pig iron prices have fallen in tandem, reducing producer profits.

Russia-origin basic low-manganese pig iron was $410-425 per tonne fob Baltic Sea, and Ukraine-origin basic material $380-385 per tonne fob Black Sea according to Steel First assessments on Thursday June 6.

“Ukrainian producers will [probably] have to divert some trades to the Far East, although prices are much lower there,” a European trader said.

Slack demand for basic pig iron has seen producers focus on new products.

Tulachermet, the world’s largest exporter of merchant pig iron and part of the Russian metallurgical Koks Group, has seen potential for further sales in specialty pig iron grades in Europe and other markets.

The producer more than doubled its foundry, nodular and semi-nodular grade pig iron output from January-March 2013 compared to the previous quarter, to 128,000 tonnes. 

“We continue to work hard to increase the maximum possible production volume of special pig iron grades [and] we are also working to further reduce impurities in our material to take new market niches in the future, both in the foundry and steel industries,” a spokesman for Tulachermet told Steel First.

Diversification strategy 
Meanwhile, Brazilian pig iron producers are increasingly worried about losing ground in their main market, the USA, as DRI production capacity is set to rise in the North American country.

In Carajás, northern Brazil, Nucor’s plans to move into DRI have long been worrying local pig iron producers.

The US steelmaker, in fact, originally planned to build a pig iron plant in Brazil or in the USA, before opting for the DRI plant in Louisiana.

Anticipating falling demand for pig iron in the future – and also looking to gain from higher added-value products – some Carajás pig iron makers decided to move downstream into steel production even before the 2008 global financial crisis.

Sinobras, formerly known as Simara, was the first to successfully follow this path.

The company, which was originally a pig iron maker with two blast furnaces totalling 180,000 tpy of capacity in Pará state, is now planning to double its current 300,000-tpy finished steel output.

Gusa Nordeste, which can produce as much as 360,000 tpy of pig iron in Maranhão state, expects to commission a 600,000-tpy greenfield long steel mini-mill by the end of this year.

Start-up is planned for October, but only at the steelmaking facility, with the rolling mill to come on stream later at an undisclosed date, the company told Steel First.

Besides the move into steel, the Carajás pig iron industry was also hit by stricter environmental and labour rules.

On a number of occasions Vale suspended iron ore shipments to local pig iron makers, alleging they had failed to comply with environmental and labour laws.

Pig iron makers were then forced to prove they were buying charcoal to charge their blast furnaces only from legitimate companies, which prompted several producers to invest in their own planted forests to in a bid achieve self-sufficiency in charcoal supplies.

But apart from demanding a non-negligible amount of investment, eucalyptus trees need an average of seven years to grow and be ready for charcoal production.

This issue, coupled with the fact that pig iron prices collapsed in the international market following the 2008/2009 crisis, caused the closures of several pig iron plants in the region over the past few years.

‘Survival of the fittest’
In 2008, there were 16 pig iron companies operating in Carajás, with annual output reaching more than 3 million tonnes.

By the beginning of 2012, there were just nine producers.

Now, there are only five – Sidepar in Pará, and Viena Siderúrgica, Queiroz Galvão, Gusa Nordeste and Margusa in Maranhão – and they have not been operating at full capacity, sources from each of the companies told Steel First.

Combining their current output, there would be only an average of two 70,000-tonne cargoes per month, making up about 1.7 million tpy in total exports.

“Another producer, Ibérica, has shut down very recently,” an executive at one of the producers still operating said.

“We’re talking of less than 30% of utilisation rate in Carajás now,” he added.

One executive from another company was more incisive.

“This is like the survival of the fittest, but we still might have other closures if prices continue that low,” he said.

Carajás pig iron export prices fell to little more than $380 per tonne fob last week, down from 2013’s peak of $415-420 per tonne two months ago and some distance from the historical high of $850 per tonne achieved in the middle of 2008.

The general expectation in Brazil is that, even if US pig iron imports do fall considerably after Nucor’s plant comes on stream, shipments from Carajás would not be much affected after all, since production levels are already very low.

Weak buying activity has also seen capacity reductions in the CIS region. Tulachermet and Russian pig iron producer NLMK idled parts of their production last week, while market participants in the region hope for market activity to return.