Lower pig iron supply and reduced US demand could have potential offsetting effects on the market going into 2023.
Spot market cargoes of basic pig iron (BPI) in the US could tighten in the first quarter as key supplier Brazil comes out of a wave of production shutdowns.
Market participants expected some squeeze on US pig iron volumes in the first months of 2023 as Brazilian suppliers look to catch up following holiday and maintenance shutdowns that kicked off in some cases in November and could run through the first few months of 2023.
Brazil was understood to have shut 70,000 metric tonnes (t)/month of production capacity earlier this month and the country is expected to shut down another 70,000t/month before the end of the year for maintenance, idling more than 50pc of production until the rainy season ends in March.
The US imported 1.9mn t of pig iron from Brazil between January and October 2022, up from 1.4mn t during the same time period in 2021, according to US Department of Commerce data.
The boost was in response to a severing of supplies from Russia and Ukraine, which combined for about 60pc of US imports in 2021, since hostilities between the two kicked off in February.
Although US buyers are still working through some inventories of higher-priced Brazilian cargoes bought in the wake of the conflict, spot market BPI prices have declined by 47pc from April peaks to $445-478/t cfr New Orleans as of mid-December as consumers locked in long-term contracts, alternative suppliers stepped in, and finished steel prices began to fall.
Still, shipments from atypical sources like India are expected to remain limited despite the country's removal of a 15pc export duty in November. Market participants estimated India will not likely be a heavy contender in the pig iron market because at current prices cargoes from Brazil, and even infrequently Ukraine, afford a higher quality-to-price ratio. India typically offers pig iron with a phosphorus content in excess of 0.12pc, making it less attractive and increasing the need to blend with higher grade raw materials, sources said.
Market participants have also highlighted higher ferrous scrap markets as another source of possible support.
The December US domestic ferrous scrap trade settled with $30/gt price increases on primes — pig iron's closest scrap alternative — and $20/gt price increases on cuts. Tightening shredded and obsolete scrap availability coupled with a modest boost in demand prompted the first set of price increases in roughly seven months.
Despite the looming pig iron supply drop, some expected that any support from supply reductions could be countered by weakened US demand.
Although some smaller consumers are expected to be active in the spot market in the first quarter, major US mills are mostly covered on volumes throughout the first quarter and even through April 2023, in part because of a shift towards increased scrap consumption, according to market participants.
US consumers began significantly reducing their pig iron dependency by adjusting their iron metallics melt mixes to include substitutes following the start of the war in February.
Companies like Nucor lowered its pig iron melt mix portion from 10pc to 6pc by using additional direct-reduced iron as an alternative source for production. SDI announced in late April 2022 it was in the process of upgrading shredded scrap to yield lower copper content.
Outright US steel mill demand and prices have also declined, cutting into consumption rates for the raw materials.
US steel capacity utilization rates have gradually declined over 2022, hitting 73.3pc in the week ending 10 December, down from 80.1pc a year earlier, according to the latest American Iron and Steel Institute data.
Spreads between US hot-rolled coil (HRC) and pig iron have also declined sharply in the past year, likely placing a ceiling on any possible increases to pig iron barring some increase in steel prices. HRC-pig iron spreads fell to $286/t on 13 December, down from $1,230/t a year earlier and close to the roughly $200/gt conversion cost for scrap and raw materials into steel.
