A potential conflict between Russia and Ukraine could have ripple effects in the US steel industry.
US steelmakers rely on Russia and Ukraine for shipments of pig iron and steel slabs, used to produce raw steel at electric arc furnace (EAF) steelmakers and for rerollers to make flat-rolled products.
Russia has denied it is planning military action, but an estimated 100,000 troops have amassed on its border with Ukraine, according to NATO. Moscow has also steamed warships into the Mediterranean and placed troops north of Ukraine inside the borders of its ally Belarus.
An armed conflict between the two countries could lead to one or both being cut off to foreign trade for an indeterminate amount of time, leading to supply shortages of steelmaking raw materials in the US.
Metallics
Russia and Ukraine have been critical pig iron suppliers to the US for years, comprising more than 60pc of the imports coming in since 2018. The US sources from several key producers in the Black Sea, many of whom account for a significant share of the US's low-phosphorus higher-priced pig iron. The region contains coastal borders of both Ukraine and Russia.
The potential conflict between Russia and Ukraine could force US pig iron consumers to lean on other global pig iron suppliers like Brazil, which made up 20pc of US pig iron imports since 2018. Brazilian pig iron is typically higher in phosphorous, making it less desirable to steelmakers in general. In 2021 through November, US pig iron imports from Brazil have surpassed Ukraine, sitting at 27pc of total volumes. South Africa has exported 23pc of its pig iron volumes to the US since 2018, or 469,395t. India, meanwhile, exported a record 189,573t to the US in 2021, after typically sending minimal volumes to the US.
Some regional pig iron relief could come from Canadian steelmaker Stelco, which has added a 1mn short tons/yr (907,000 metric tonnes/yr) pig iron caster at its Hamilton, Ontario, mill. The pig iron caster is meant to improve Stelco's efficiency, allowing it to continue producing pig iron when finished steel demand wanes.
Material alternatives like direct reduced iron (DRI) and hot briquetted iron (HBI) are also available in the region. Electric arc furnace (EAF) steelmakers Nucor and Steel Dynamics (SDI) both operate their own DRI plants, with Nucor having the largest facilities located in Louisiana and Trinidad and Tobago. Nucor exported just under 1.61mn t to the US from its Trinidad and Tobago plant last year, which accounted for roughly 95pc of its 1.7mn t/yr capacity, especially when accounting for brief outages.
HBI production has been on the rise in recent years with the addition of capacity from Cleveland-Cliffs and Voestalpine. Both companies operate their own 2mn t/yr HBI plants, with Cleveland-Cliffs' in Toledo, Ohio, and Voestalpine's in Corpus Christi, Texas. Despite the increased production, little may be available domestically. Voestalpine has averaged just under 850,000t of exports from Corpus Christi each year since 2018, some of which is designated for its mill operations in Austria. At the same time, Cleveland-Cliffs consumes its HBI internally in its steelmaking operations.
Still, not all mills are set up to consume DRI and HBI in larger volumes, unlike pig iron, whose chemistry lends it to melting by the wider market.
Despite the viable alternatives the US has available should Russian and Ukrainian pig iron exports be cut off, 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 the total steelmaking capacity in 2021. So despite some other options, existing alternatives may not be enough to offset the increasing demand as new steel mills such as SDI in Sinton, Texas, and Nucor Gallatin in Kentucky come online and expand operations.
Slabs
Russian slab exports to the US have varied in recent years, ebbing and flowing with prices. Most Russian slabs coming to the US are from Russian steelmaker NLMK and are destined for its US subsidiary, which operates a 1.1mn st/yr (1mn t/yr) slab rerolling mill in Pennsylvania and an EAF flat-rolled mill in Indiana.
In 2018, Russia flooded the US with 1.7mn t of slab as US steel prices rose to near-record highs of $1,000/st after then-president Donald Trump imposed 25pc Section 232 tariffs on all steel imports into the country. Prices then steadily declined in the latter part of the year.
The falling prices and increased costs of tariffed Russian slabs led to a steep decline in US imports from Russia through 2020, as NLMK USA and other rerollers sought cheaper slabs from nontariffed sources like Brazil.
That changed in 2021, when the Argus US Midwest hot-rolled coil (HRC) assessment nearly doubled to a peak of $1,970/st in mid-September, during which Russian slab imports jumped to 1.05mn t through November, according to data from the US Department of Commerce.
A conflict between Russia and Ukraine could lead to sanctions by the US government that cut off trade flows of goods such as slab, potentially increasing the cost of business for NLMK USA and other domestic rerollers who rely on Russian slabs to produce flat-rolled products like HRC.
Any slack could be picked up by Brazil, the largest slab exporter to the US, which made up nearly 56pc of US imports since 2018. Mexico may also be able to ship more slabs, having made up 19pc of US imports since 2018, while Canada may have some limited export capacity as well.
