Brazilian basic pig iron (BPI) producers are expected to hold prices at three-year highs to offset currency losses and take advantage of lower freight costs after the reopening of the strait of Hormuz.
A US-Iran agreement to end hostilities signed on 14 June is expected to pave the way for the full reopening of the strait of Hormuz in the coming days.
The four-month blockage of the waterway connecting the Persian Gulf and the Gulf of Oman disrupted oil and gas markets, adding volatility to fuel prices and boosting freight costs.
Shipping costs are expected to decline as fuel prices fall back to pre-war levels, lowering prices on a cfr basis. The formal end of the conflict still depends on further negotiations and a deal to be signed by both countries by the end of this week.
US mills pressured Brazilian suppliers in March to cut their fob offers in order to sustain cfr prices at steady levels, effectively asking exporters to absorb part of the increase in freight costs. Brazilian exporters broadly resisted this effort at the time, arguing that a weaker US dollar was already compressing their margins, limiting their ability to concede further price reductions.
Brazilian producers now expect part of this downward pressure on prices to ease as freight rates begin to decline.
Beyond freight, Brazilian pig iron producers said the peace deal is unlikely to bring any significant upside, as their higher production costs were unrelated to the war.
"In moments of stress, the dollar strengthened, which actually improved our margins. A weaker dollar is expected post-conflict, which will limit our ability to lower prices," a supplier said.
Argus' fob Brazil southeastern price increased to $490-495/metric tonne (t) in June, up from $412.50/t in January.
Brazilian mills primarily use charcoal from locally farmed eucalyptus trees to run their furnaces, a feedstock that is currently scarce and consequently more costly. The heavy rainy season in Brazil weighed on charcoal output and slowed BPI production, limiting supplies.
India, Ukraine shipments increase
US mills turned to alternative BPI sources to make up for the reduced availability from Brazil, their main supplier since the Russia-Ukraine conflict began in 2022.
In April, shipments from Ukraine and India increased, US customs data show.
Pig iron from both countries is typically produced using metallurgical coke rather than charcoal, making their offers currently more competitive. Unlike Brazilian producers, India and Ukraine could see a greater improvement in competitiveness from a US-Iran peace agreement.
Producers in Ukraine and India rely on imported raw materials, unlike Brazil, meaning a drop in freight rates could meaningfully lower their cost of production. India imports most of its coking coal and iron ore, while Ukraine has increasingly relied on the seaborne market for coking coal since Metinvest shut its Pokrovsk mine in January last year. Shipping rates also account for a large share of cfr prices from these origins, making them more exposed to freight fluctuations. Their import prices are therefore expected to fall once freight rates ease, market participants said.
