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Brazilian, CIS producers seek options in weak pig iron market

Keywords: Tags  steel, pig iron, Brazil, CIS, Russia, Ukraine, Nucor, imports exports

SÃO PAULO — Brazilian and Commonwealth of Independent States (CIS) pig iron producers are looking to adjust their output and marketing strategies in response to challenging market conditions.

The pig iron industry, hit by weak demand and depressed prices in recent years, is set to face another blow when Charlotte, N.C.-based steelmaker Nucor Corp. commissions its 2.5-million-tonne-per-year direct-reduced iron (DRI) plant in Louisiana later 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 U.S. market.

In Russia, pig iron producers also export to nearby regions, but they 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.

Russian basic low-manganese pig iron was at $410 to $425 per tonne f.o.b. Baltic Sea, and Ukrainian basic material was $380 to $385 per tonne f.o.b. Black Sea, according to assessments June 6 by AMM sister publication Steel First.

Meanwhile, Brazilian pig iron producers are increasingly worried about losing ground in their main market, the United States, 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; Nucor had previously considered building the DRI plant in Brazil before opting for 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.

Besides the move into steel, the Carajás pig iron industry was also hit by stricter environmental and labor rules. On a number of occasions, Brazilian miner Vale SA suspended iron ore shipments to local pig iron makers, alleging they had failed to comply with environmental and labor 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.

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

Carajás pig iron export prices fell to little more than $380 per tonne f.o.b. recently, down from 2013’s peak of $415 to $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 U.S. pig iron imports do fall considerably after Nucor’s plant comes onstream, shipments from Carajás would not be much affected after all because production levels are already very low.

Weak buying activity has also seen capacity reductions in the CIS region. Russia’s OAO Tulachermet and Novolipetsk Steel (NLMK) recently idled parts of their production, while market participants in the region hope for market activity to return.

Nina Nasman, London, contributed to this story.

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