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Pig iron producers to feel heat from DRI boom

Keywords: Tags  Nucor, Tulachermet, Donetskstal, Gerdau, ArcelorMittal, Votorantim, Brazil pig iron, CIS pig iron direct-reduced iron

MEXICO CITY — Nucor Corp.’s move into production of direct-reduced iron (DRI) in the United States is expected to reduce global trade flows of pig iron into the country, affecting producers from Brazil and, to a lesser extent, Russia and Ukraine.

The Charlotte, N.C.-based steelmaker, which already has a 2-million-ton-per-year DRI facility in Trinidad and Tobago, plans to commission its 2.5-million-ton DRI plant in Louisiana in the latter part of this year’s third quarter.

This will further diminishing the company’s need for third-party scrap and scrap substitutes, such as pig iron and hot-briquetted iron (HBI).

"We anticipate being at full production (in Louisiana) by the end of the year," a Nucor spokeswoman told AMM sister publication Steel First May 28.

Nucor plans to build as many as three other DRI units at the same site, as well expand an existing plant in South Carolina, because access to affordable natural gas energy has heightened interest in DRI production in North America.

"The plant in Louisiana will definitely affect imports of pig iron into the U.S., as Nucor is the biggest importer here," one U.S.-based pig iron trader said.

A second U.S. trader agreed. "I think 60 to 70 percent of the pig iron imported into the U.S. goes to Nucor, and their pig iron requirements will surely go down (after the Louisiana plant comes on-stream)," he said.

Executives from Nucor have already said that the new DRI output will displace part of the pig iron and scrap materials the company buys from third parties.

Former Nucor chief executive officer Daniel DiMicco said the company used to import about 3 million tons of pig iron until a few years ago, mostly from Brazil.

The spokeswoman didn’t disclose the volume of scrap and scrap substitutes Nucor currently buys.

Data compiled by Metal Bulletin Research (MBR) show total net U.S. pig iron imports of 4.2 million tonnes in 2012 and 4.12 million tonnes in 2011.

"This new DRI plant in Louisiana is part of our long-term raw materials strategy to provide 6 (million) to 7 million tons per year of low-cost, high-quality iron units to our steel mills," the spokeswoman said.

In 2012, the steelmaker recycled about 19.2 million tons of scrap, which is mixed with iron units such as pig iron and DRI for the production of steel products like sheet, plate and special bar quality (SBQ) steel.

"The main feedstock for our mills is scrap. That won’t change, and DRI will not replace all pig iron and scrap metal," the spokeswoman added.

The direct effect of the plant’s commissioning on Brazilian pig iron exports is difficult to quantify, several sources told AMM sister publication Steel First.

"It will affect the market, no doubt about it, but we’ll need to see this plant (in Louisiana) up and running to estimate a figure," one major pig iron producer in Brazil’s northern region of Carajás said.

Two other important local producers also said that they expect a reduction in Nucor’s pig iron purchases, but couldn’t give a clear forecast.

"Nobody knows for sure," one producer said.

Nucor also couldn’t quantify how much its pig iron requirements would be reduced. "The DRI will replace both pig iron and scrap metal, but the exact mix will depend on the cost of those materials at the time we make those decisions," the spokeswoman said.

The only certainty among Brazilian sector participants is that producers from Carajás will be affected much more than anyone else since they depend entirely on the export market, and especially on shipments to the United States.

Pará and Maranhão, the states that make up Carajás, exported 971,032 tonnes and 1.13 million tonnes of pig iron, respectively, in 2012.

Shipments to the United States from Pará accounted for 83.3 percent of the region’s total pig iron exports, while those from Maranhão reached 84 percent of total shipments.

In 2011, the United States accounted for 72.4 percent of Pará’s and 90.4 percent of Maranhão’s total exports, according to figures from Brazilian foreign trade ministry MDIC.

It is a different case in Brazil’s southeastern Minas Gerais state, where pig iron makers have been selling most of their output to local steelmakers such as Gerdau SA, ArcelorMittal Brasil SA and Votorantim Siderurgia SA.

Minas Gerais producers have also managed to diversify their export destinations over the past few years, with the United States taking only 274,788 tonnes of the state’s total shipments of 801,024 tonnes in 2012.

"The new Nucor plant will affect Brazilian producers, but also less directly (Commonwealth of Independent States) producers as U.S. consumption of pig iron will decline," one European trader said.

Ukraine exported 413,707 tonnes of pig iron to the United States in 2012, while Russian shipments to the country reached 1.41 million tonnes.

CIS pig iron producers are less worried than their Brazilian counterparts about the loss of sales volumes, however, mainly due to the share of total exports going to the United States.

Shipments from Ukraine to the United States represented only 21 percent of the country’s total exports last year; in the case of Russia, the United States accounted for 36 percent of total exports. Both levels are far below those seen in Carajás.

Ukraine-based pig iron producer Donetskstal JSC exports 150,000 to 200,000 tonnes per year of pig iron to the United States. "I don’t think (the Nucor DRI plant) will have a huge influence on us," a source at the company said. "We could lose some quantities, but it’s not our main market."

OAO Tulachermet, the world’s largest exporter of merchant pig iron and part of the Russian metallurgical Koks Group, sells about one-third of its production—at 2.12 million tonnes in 2012—to the United States.

The company doesn’t expect Nucor’s DRI plant to substitute for its pig iron needs.

"If Nucor was able to substitute pig iron with DRI, it would have done it a long time ago, buying additional quantities on the market from Venezuela or Russia," a spokesman for Tulachermet said. "We assume that their pig iron consumption volumes will not be affected by (the) launch of this new facility."

Traders also noted that Nucor’s DRI facility will mainly feed into the company’s 23 steel plants across the United States, which produced 19.9 million tons of steel products in 2012.

"Other steel plants will still import pig iron," a second European trader said.

Several mills—including Severstal North America Inc., Dearborn, Mich.; North Star BlueScope Steel LLC, Delta, Ohio; Steel Dynamics Inc., Fort Wayne, Ind.; and Gallatin Steel Co., Ghent, Ky.—are usually active in the market.

Nevertheless, given Nucor’s plans for raw materials self-sufficiency, and it being the largest pig iron importer, CIS pig iron producers might not be completely spared from the expected fall in pig iron imports.

Brazilian and CIS pig iron producers are already pushing into new products and market niches, as weak buying and low prices are creating challenges for the market.

Nina Nasman, London, contributed to this story.

A version of this article was first published by AMM sister publication Steel First.

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