Viewpoint: US pig iron demand to rise on EAF growth

Market: Metals
27/12/21

US demand for basic pig iron (BPI) is expected to climb in 2022 as new steelmaking capacity comes on line, but price direction will likely be tied to a finished steel market that cooled to end 2021.

Market participants have recently been split on the possible direction for BPI prices heading into 2022 as raw material costs and finished steel prices ease but outlooks for demand remain firm.

The Argus BPI assessment cfr New Orleans stood at $545-555/metric tonne on 23 December, off by 18pc from record highs set in July and just under levels from a year earlier.

Raw materials

Pig iron prices were supported throughout much of 2021 on higher prices for raw materials and scrap alternatives.

Iron ore, the main raw material cost for pig iron, surged over the middle part of the year amid wider margins and stronger demand in China. The seaborne trade for iron ore hit historic highs in May with prices for 62pc fines cfr Qingdao well above $210/dmt.

At the same time, pig iron's main domestic scrap alternative, #1 busheling, also traded at higher prices throughout the year. Spurred by limited generation and strong mill demand, national #1 busheling prices hit an Argus high of $633/gt ($623/t) in July.

Iron ore and scrap markets have declined in the last months of 2021, mirroring weakness in finished steel prices.

At the end of December, iron ore prices had declined by 47pc from their yearly peak to just under $125/dmt, while #1 busheling was off by 7pc to $588/gt. US hot rolled coil prices fell by 17pc to $1,628/st in nearly the same period.

Growing EAF consumption

The US is on track to add just under 8.2mn short tons/yr (7.4mn t/yr) of new melting capacity in 2022, roughly 7pc more than 2021 total capacity. The bulk of this will come in the form of new and upgraded flat-rolled facilities headlined by 3mn st/yr from Steel Dynamics' Sinton, Texas, operation.

Flat-rolled mills, especially electric arc furnace (EAF) variants, tend to require the greatest share of iron metallics in their melts compared with other types of finished steel. Sources estimate flat-rolled EAFs require roughly 25pc of their melt to be cleaner higher-yielding iron units, such as BPI, at any given time. Based on just the flat-rolled expansions, the US would need to consume an additional 1.75mn st of BPI in 2022 if those operations ran at full capacity.

Options for sourcing iron metallics domestically remain limited. Cleveland-Cliffs has cut its third-party sales of hot briquetted iron (HBI) from its 2mn t/yr Toledo, Ohio, plant since June, instead opting to supply its own operations. Coupled with its acquisition of Ferrous Processing and Trading (FPT) in early October, the steel and iron pellet producer holds a significant portion of #1 busheling and Midwest-based metallics production.

As a result, the expansions are expected to drive imports, already a major source of iron metallics for the majority of US EAF operations. The US is on track to import 6.2mn t of pig iron in 2021, according to Commerce Department data. The additional capacity could grow that figure by 26pc as soon as 2022.

Seaborne trade

Market participants are skeptical that China will resume its significant role in the seaborne trade in 2022. The world's largest steel producer had imported more pig iron than the US in 2020 but had reverted to domestic supply by early 2021 as higher seaborne prices and looser local blast furnace restrictions weighed.

Brazil did export roughly 141,000t to China in November, the first sizable volumes since February, but market participants expect this trend to be short lived once a flurry of sales booked in late September and early October get filled.

US traders and consumers have paid increasing attention to renewed military tensions between major Black Sea exporters, Russia and Ukraine. Combined, the two have accounted for 63pc of US imports so far in 2021. Any disruptions to this supply either through military action or sanctions could squeeze US supply dramatically.

By Zach Schumacher

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