CIS pig iron exports supported by demand from China

China's buying interest was the key support to CIS exports of pig iron in the first half of this year, with the country receiving more than 16pc of combined overseas shipments from Russia and Ukraine over the period, up from just 2pc in the first half of 2019.

Chinese BPI import appetite surges

CIS merchant pig iron producers' exports reached around 3.76mn t in January–June, just 0.8pc lower than a year ago. And China took 613,000t of the total, a 9.1 times increase.

Appetite for pig iron from China — the only active and buoyant pig iron import market for the past few months — was supported by firm domestic steel production, which in January-June rose by 1.4pc from a year earlier to 499.01mn t, data from the country's National bureau of statistics (NBS) show, keeping China on track to produce 1bn t of steel this year despite the impact of the Covid-19 pandemic.

Of the other major importers of CIS BPI, US steel output slipped by 17.9pc year on year to 40.63mn t in January–June, with an average production capacity utilisation rate at around 68pc, data from American Iron and Steel Institute (AISI) show. Turkey's January–May steel production of 13.49mn t was 5.6pc down on the year, and Italy's five-month output was 26.9pc lower year on year at 7.65mn t, according to Worldsteel.

"China entered the lockdown measures against the Covid-19 outbreak first, got out of them first and seems to be recovering from their consequences most rapidly, feeding its relatively strong steel output with imported pig iron, while others are still struggling at least to maintain production," one trader said.

As a result, Russian shipments of pig iron to China totalled 304,000t in January–June, almost 4.5 times more than a year before, accounting for 15.1pc of the total compared with just 3pc in the first half of 2019, Russian rail data show. And Ukrainian deliveries reached 309,000t over the period, or 20.6pc of the total, the country's custom service said. In January–June 2019, Ukraine did not export pig iron to China at all.

These data do not reflect transactions concluded in the recent few months, as most of them have been scheduled for later delivery amid limited availability of material. Chinese buyers booked in the spot market at least 540,000t of Russian and Ukrainian pig iron during May-mid-July, of which around 110,000t was planned for July shipment, 300,000t for August and 150,000t for September.

US spot bookings of CIS-origin pig iron were around 250,000t over the same period amid continued weak buying interest and volatility in the domestic ferrous scrap market.

Covid hits overall CIS pig iron shipments

Overall pig iron exports from Russia totalled 2.01mn t in the first six months of this year, down by 12pc on a year earlier, undermined by weaker demand from Italy and the US — the key outlets for Russian exporters — comprising 23.7pc and 31.8pc of Russia's total exports — as both countries were severely impacted by the pandemic (see table). But shipments noticeably improved from a 30.6pc drop in the first quarter.

Russia produced 26.1mn t of pig iron in January–June, up by 2.2pc on the year, deteriorating from a 2.6pc increase mostly due to a weaker domestic steel output, which was 3.5pc lower on the year at 28.5mn t in the six-month period, the country's statistics service Rosstat's data show.

Ukraine's January–June pig iron exports of 1.5mn t were 22.8pc up on the year, with the US remaining the largest recipient, taking 56pc of the total, followed by China and Turkey, which accounted for 20.6pc and 7.7pc shares, respectively. Ukrainian pig iron output, in contrast to Russia, declined in January–June by 2.6pc on the year to 10.2mn t, according to state-controlled metals association Ukrmetallurgprom.

The rise in exports was broadly attributed to the fact that Ukrainian pig iron exporters were more willing to accept lower prices from Chinese buyers in the first quarter and continued to sell volumes to China thereafter. Steelmakers Metinvest and ArcelorMittal Kryvyi Rih (AMKR) have been Ukraine's key pig iron exporters.

Turkey was the only traditional buyers of CIS BPI to consume more pig iron from the region in the first half of this year. Turkey imported 115,800t from Ukraine, 11.2pc up on the year, 447,500t from Russia, almost a 100pc rise, and 242,765t from Ukraine's breakaway Donetsk region, down by 19.7pc.

The Donetsk region is incorporated into Russia's rail transport data as shipments from Russian rail stations near the Russian/Ukraine border, including Uspenskaya, Gukovo, Bataisk and Zarechnaya, are not used by any Russian pig iron producer. Shipments were made from these stations to the Novorossiysk-Exportnaya and Zarechnaya-Exportnaya stations, which are used for handling exports routed through the southern ports of Novorossiysk and Rostov, respectively.

Pig iron from Donetsk usually trades at prices $10-40/t lower than Russian and Ukrainian producers can achieve, dampening official export figures from two countries. But this year, Donetsk-located mills experienced interruptions in raw material supply and various production problems, which resulted in lower exports from the region and, consequently, higher exports from Ukraine and Russia to Turkey, market participants said.

Narrowed spreads between CIS pig iron export prices and Turkish ferrous scrap import prices, especially at the beginning of this year and in early April — the most Covid-19-impacted month in the global ferrous context — fed stronger interest for pig iron from Turkish buyers (see graph).

China maintains purchasing appetite

Since early March, after Italy, the US and other smaller buyers such as Germany, Spain, South Korea and Poland one by one stepped back from the market owing to lockdowns, Chinese buyers took advantage of being the only active BPI customer and pressured for lower prices from CIS suppliers.

But a gradual uptick in raw material prices, which started in early April and turned into a sharp rise in early July on shorter supply from Brazil, led not only to a subsequent increase in pig iron prices, but also boosted physical purchases of pig iron as substitute to expensive iron ore.

This implanted some confidence into sellers, which already played the limited availability card to support prices, and cautioned them against price reductions to meet softer bids from the US.

CIS sales to China registered last week were heard done at $353–354/t cfr, while a deal to the US was concluded at $330/t cfr, conforming to the highest bids from US buyers. Even given freight rate difference and special conditions in the US deal, the difference in the fob equivalents can be estimated at $5-8/t.

But market participants anticipate that global BPI prices, including for CIS material, will be likely to slide in the third quarter on traders' expectation that actual physical availability from the CIS and Brazil is higher than producers have claimed, stabilising-to-lowering iron ore prices and slowing demand from other outlets outside China.

By Valery Zavyazkin

Argus CIS pig iron export and Turkey ferrous scrap import prices $/t