Alternative metals market- Q4 showdown looms

The basic pig iron (BPI) market remains virtually unchanged despite perceived weakness in other ferrous materials, such as scrap, billets, HRC and iron ore. For the U.S., Brazil has been the main source of BPI imports since the Russian-Ukrainian conflict arose in 2022. There have been no imports from Russia and only spotty shipments from Ukraine since then. Prior to 2022, combined Russian and Ukrainian production comprised over 65% of U.S. BPI imports, primarily due to their lower Phos content. Their relative absence from the market has limited the sources from where U.S.-based steelmakers can economically import. This has created a shortage which has kept prices of Brazilian BPI elevated when compared with ferrous scrap in the U.S. Several countries in Europe are still importing from Russia. If they weren’t, the U.S. shortage would be even more severe.

On the Brazilian side, the only relevant market for BPI is the U.S. So, they have to price their product to compete with other exporting countries such as India. But more importantly, they need to keep their delivered price within range of U.S. domestic ferrous scrap. This is setting up a possibly contentious negotiation on the next round of buying for Q4 deliveries.

Since the start of the year, ferrous scrap prices for prime scrap, namely #1 Busheling and #1 Bundles, had dropped $80-100/metric ton (mt). However, imported Brazilian pig iron has traded with a range of $470-485/mt on a CFR U.S. Port basis. So, BPI to date has only dropped $15/mt while prime scrap dropped much more. With weakness in demand for HRC, BPI has become an expensive addition to the burden of scrap in the EAFs of flat-roll steelmakers in the U.S. When calculated on a delivered works basis, BPI costs well over $510/mt based on the most recent offers from Brazil of $470/mt CFR. Mills can obtain prime scrap at around $395/mt. They want to narrow this $100/mt-plus spread.

RMU recently reached out to a major BPI buyer based in the U.S. who agreed that pig iron prices were way too expensive compared to a wide variety of ferrous products. He also stated offers as low as $440/mt CFR have been heard from South Asian producers.

RMU also spoke to a Brazilian-based export executive about the expectations of producers there. He said the onset of rainy season next month will increase the price of charcoal, which is the main reductant used in Brazil to produce pig iron. The pig iron trade there was hoping for a rise in the U.S. scrap market in August so they could obtain a price increase for BPI. This has not happened. As a result, they have not attempted to increase their offer price and have kept it at $470/mt CFR. There have not been any reported new sales at this price.

The Brazilians are facing a strengthening in the real versus U.S. dollar (USD), which negatively affects their production costs. The pig iron trade in Brazil has historically benefited from a strong USD and has made exports to the U.S. profitable.

Another factor which could affect future pricing is the amount of Brazilian pig iron bought by the domestic steelmakers. At a recent meeting of the Brazilian Steel Association, there was optimism about the demand in the domestic market. Our source noted, “for the last two to three years, it has been 50/50 [domestic/export], while it used to be 70% sold to the domestic market.” This has not happened yet.

RMU spoke with a U.S.-based pig iron trader and distributor about the situation. He said “pig iron is too tight. U.S. mills wanted to take scrap down in August but couldn’t get it done.” He added, “Brazil is firm at $470/mt CFR for high Phos BPI and $485/mt for low Phos material.”

Even though Brazilian producers were expecting a $20/mt increase for Q4 shipments to the U.S., it doesn’t seem very likely U.S.-based users will agree. U.S. buyers are expecting a decrease in prices.

When asked whether HBI could come to the rescue, the trader explained that the main source for HBI has been Venezuela. However, material there is not readily available, and their Fe yield is down to 85%. The other units which produce HBI/DRI in New Orleans, Toledo, and Trinidad are owned by steelmakers. The same goes for the HBI plant in Corpus Christi, TX. Therefore, the material is captive and not sold into the general market. There is also a very weak trade flow of HBI into the U.S. from Africa or Asia.

With eyes back on pig iron, RMU will continue to monitor the progress and keep the RMU community updated as new information unfolds.