US electric arc furnace (EAF) steelmakers are scrambling to shore up iron metallic and prime scrap supply chains as the Russian invasion of Ukraine leaves critical pig iron supply from both nations in question.
Wide-reaching financial sanctions and export controls against Moscow and the suspension of vessel movement in and out of major ports on the Black Sea have disrupted pig iron supply chains.
Uncertainty regarding the duration of disruptions has prompted US steelmakers to consider alternative outlets, as well as increasing prime ferrous scrap usage.
Russia and Ukraine are critical pig iron suppliers to the US, together comprising more than 60pc of total US imports since 2018.
This concern has escalated in recent weeks with US mills strategizing on alternative supply scenarios for iron metallics as the likelihood of conflict between both counties intensified.
The surge in demand for Brazilian basic pig iron (BPI) and temporary drop in available global supply has sent prices soaring.
A Brazilian sale was heard at $585/t cfr Nola this week, a $35/t jump from last week's assessment. A second Brazilian sale was done at $615-620/t cfr Nola, but contained a mix of higher quality pig iron. Market participants noted that with US banks anticipating sanctions with Russia and vessel operations closing down in Ukraine, prices are expected to increase in the following weeks.
Ukraine and Russia were the primary suppliers of low-phosphorus pig iron for the US, which will leave steelmakers with limited options to replace most of their needs.
Uses of high-phosphorus pig iron are more limited for mills with more stringent chemical requirements, the majority of which serves the automotive sheet market.
US pig iron market participants are also bracing for less availability from mill-owned brokers, who likely will prioritize meeting their own internal needs.
Mills will also likely increase use of prime scrap, which will add further to #1 busheling price upside heading into the March ferrous scrap trade next week. Some US mills are trying to lock up #1 busheling, with at least one major mill heard to be pursuing 60-day supply deals, according to market sources.
Scrap suppliers have so far shown little interest in longer-term supply contracts given the perceived upside in the market, as the outlook for the US domestic March ferrous scrap trade became increasingly bullish today.
Buyers and suppliers surveyed by Argus indicated that prime scrap prices could rise by at least $40-50/gross ton this month from February with additional upside for any mills that are short prime units. Market participants noted that obsolete grades are poised to follow in unison following tighter scrap availability and increased demand in seaborne ferrous scrap markets through February.
Still, some steelmakers noted that there is no clear-cut solution to replacing pig iron as existing availability typically has higher phosphorus levels, while like-for-like substitution of pig iron units for primes is inefficient because of higher residuals in prime scrap.
Throughput could also be negatively impacted because of density differences between pig iron and prime scrap in charge buckets.
Leading US steelmaker Nucor said the diversity of its raw material mix should blunt any impacts from a lack of pig iron.
"Should the availability of pig iron from eastern Europe be curtailed for any length of time we are confident that we can replace this material with alternatives," Nucor told Argus. "We have a diversified base of suppliers to offset any shortfall, and our steelmaking operations are flexible enough to accommodate a wide range of ferrous materials as inputs."
