HRC index spikes as pig iron soars in US
Another rally in hot band prices is under way in the United States, not long after the coronavirus pandemic and Section 232 tariffs pushed the hot-rolled coil index to break new records in 2020 and 2021
The astonishing U-turn in the direction and price of prime steel in the US has again shone a light on how acutely a broken link in global supply chains can impact business on distant shores as well.
Fastmarkets’ daily steel hot-rolled coil index, fob mill US, was calculated at $68.13 per hundredweight ($1,362.60 per short ton) on Monday March 21, the index now at its highest point since January 24, when the price was calculated at $71.75 per cwt.
After hitting a recent low of $49.26 per cwt on February 18, the index has climbed by 38.3% in the span of just one month.
As the HRC price continues its ascent in the US, a common refrain heard from buyers is that domestic steel producers are not quoting offers in the normal volumes as they strategize on pricing, primarily due to the impact the Russia-Ukraine war is having on raw material supplies and energy costs.
For example, the US is a significant importer of pig iron, a key component in making higher-quality steel in electric-arc furnaces (EAFs).
“I read something about pig iron being extremely impacted by the Ukraine war,” a West Coast source said. “Thus, all EAFs are seeing spikes in inputs.”
Prices for pig iron sales into the US have climbed above $1,000 per tonne, with Fastmarkets’ price assessment for pig iron, import, cfr Gulf of Mexico, US, reaching $1,000-1,030 per tonne on March 18. That is up sharply from $860-890 per tonne on March 11 and $640-650 per tonne on March 7.
Supplies of pig iron from Russia and Ukraine account for around 61% of total US pig iron imports, according to US Census Bureau data. The US imported 6.02 million tonnes of pig iron in 2021, up by 33.70% from 4.50 million tonnes in 2020. Of this total, 2.00 million tonnes were from Russia and 1.68 million tonnes from Ukraine.
The instantaneous tightening of the pig iron market due to much of it arriving from Ukraine and Russia had immediate repercussions in the ferrous scrap market. No1 busheling - a substitute for pig iron - in Chicago leapt by $190 per gross ton to $685 per ton in the monthly March trade and there has been chatter that the April trade will likely see another strong increase.
In such a scenario, steel producers with captive supply of metallics are in a stronger position to buffer the headwinds created by the war, some sources said.
For instance, US Steel Corp is building a pig iron machine at its Gary Works in Indiana to supply Big River Steel with up to 50% of its ore-based metallic needs by the first half of 2023.
The investment is estimated at $60 million and will produce up to 500,000 tons of pig iron per year. Gary is an integrated operation, which puts the company in a unique position to upgrade Gary to become capable of producing pig iron.
“These actions build upon the regionally sourced, low-cost iron ore advantage our US blast furnaces have and the strategy in place with Big River Steel to supplement a portion of their prime scrap needs with home scrap from our integrated operations,” US Steel president and chief executive officer David B Burritt said in the company earnings guidance released on March 17.
Steel Dynamics Inc (SDI) noted in its 2020 annual report that “some of our integrated steel producer competitors are not as dependent as we are on scrap as a part of their raw material melt mix, which during periods of high scrap costs relative to the cost of blast furnace iron used by the integrated producers give[s] them a raw material cost advantage over EAF mills.”
Charlotte, North Carolina-based steelmaker Nucor purchases pig iron as needed primarily from overseas sources, including Russia, Ukraine and Brazil.
“We purchase pig iron as needed from a variety of sources and operate DRI [direct-reduced iron] plants in Trinidad and Louisiana with respective annual production capacities of approximately 2,000,000 and 2,500,000 tonnes,” Nucor said in its 2020 annual report.
Nucor’s supply of metallics notes that the company “bought around 2.5 million tonnes of pig iron last year, with a hair more than half of that coming from Russia and Ukraine while the remainder came from Brazil,” according to a JP Morgan note.
“Nucor started the year with higher-than-normal levels of pig iron inventory as things slowed near the end of 2021, and that - coupled with increasing/reallocating DRI - along with secondary shredding should last them through year-end 2022.”
Meanwhile, Cleveland-Cliffs Inc is the only flat-rolled steel producer in the US that is fully self-sufficient - from coal and iron to hot-briquetted iron (HBI) and scrap, according to another JP Morgan note.
As large mini-mills’ existing inventory of higher-quality pig iron from the Black Sea is drawn down, prices for metallics will continue to push higher and support steel prices “well into next year,” the note said.
HBI is a compacted form of DRI, which is a supplement for pig iron and scrap in EAF mills.