The global basic pig iron (BPI) market is on the verge of some temporary changes as the ex-Russia BPI quota in Europe may be filled before the end of the year and some gap in volumes may emerge, pushing up demand for BPI from alternative suppliers and causing an increase in import prices as a result. SteelOrbis has polled players in the global BPI market to evaluate the scenarios for the shifts in volumes and prices in the period up to the end of the current year.
According to the EU customs data, as of July 31 ex-Russia pig iron imported to the European Union in the current year amounted to 743,378 mt, meaning that 65 percent of the annual quota has been filled in the first seven months of this year. The remaining quota for the current year is slightly less than 400,000 mt of pig iron or 80,000 mt per month.
So, how bad is the situation? Based on the data from Eurostat, average monthly shipments from Russia to the EU in 2023 amounted to nearly 120,000 mt. So, the worries about possible undersupply are not groundless. Another question is how big the consequences may be? The views of market players are divided.
From radical to mild scenarios
The most radical scenario is that prices may surge from late September for a few months and that European customers will have to switch to other origins like Ukraine and Brazil. “The most interesting period will start in late September when the quota will be almost exhausted and it is unlikely that someone will buy a big vessel [from Russia], having only a quota of 50,000-100,000 mt left. As it may arrive in Europe and be stocked until January 1, which is expensive,” a market source said, adding that he does not exclude that prices in Italy will hit and exceed $500/mt CFR [up by $70/mt from the current level].
Of the other major BPI suppliers, Ukraine is assessed as being more likely due to its logistical advantage, though both Brazil and Ukraine are expected to maintain their focus on the US import market towards the end of 2024 and in the first half of 2025 as it is a stable import partner unlike Europe. Nevertheless, as one of the Ukrainian producers commented, “It is obvious that the price will increase [in the EU], but I think it will be in a gradual way. The peak will depend on local scrap prices there, though they may also increase amid the deficit of pig iron. Prices are expected to start to increase by the end of September,” adding that additional allocation from Ukraine is possible as production capacities there are not being fully utilized.
Another Ukrainian pig iron exporter said that there have been no active moves from European buyers so far to replace Russian material. “At the moment, there are plenty of offers from Russia due to the cancelation of export duty and the quota could be enough up to the end of the year,” the representative of one mill stated, especially, he said, if some buyers partially increase usage of DRI/HBI, which can now come from Libya and the US as well as from Venezuela.
One of the main European importers said that sharp price rises are not expected as “the trend is really bad for finished products and so mills will wait for 2025. Regarding Brazil, it is too early and too expensive for Europeans.” Another source from Europe said he also viewed the radical scenario as not being the most likely one, but stated that there may be some shift towards Ukrainian material as well as a possible price increase “to the level which is reasonable for sellers, based on the US market”.
What is the position of Russian suppliers?
The current position of some Russian mills is that the quota will be more or less enough for this year and, even though the tradable levels have declined, not all mills are ready to push volumes at discounts. Also, overall trading is usually silent in August due to the holiday season in the EU. The most interesting question is, even if the gap in supply in the fourth quarter left by the Russians for other BPI suppliers is small, what can be expected for 2025 when the EU quota will be reduced from 1.14 million mt to 700,000 mt? “We will accumulate material to be able to fill the quota to the maximum from January 1. I believe most Russian sellers will do the same. So, it is possible that the quota for 2025 will already be exhausted by May,” a source selling Russian pig iron said.
Some other sources do not see such a radical scenario but most of them expect a shortage of pig iron in the second half of 2025 and some transformation of the market.
“I think the Brazilians will not be so interested in supplying basic pig iron to Europe in that small window [in Q4], but they may want to increase nodular pig iron supply in the longer term in a stable manner,” a Brazilian source said.
Also, there are reports about increased numbers of new “schemes” for shipment of Russian material not included in the quota. In particular, there has been information about an ex-Venezuela HBI cargo going to Europe which made a stop at a Russian port and possibly loaded some additional Russian HBI. Also, some shipments of Russian material to different European countries are leaving from Lithuania. “Maybe they are hoping for the same trick done for slabs [when the grace period was extended for four years],” a source said.
Current situation
This week, the SteelOrbis reference price for ex-Russia BPI has settled at $390-400/mt FOB Black Sea, moving down by $10/mt over the past week. A deal for at least 30,000 mt of ex-Russia material was done to Italy at $430/mt CFR last week, translating to near $400/mt FOB, while new bids have been voiced at $425/mt CFR at the highest.
Some mills are still insisting on offers at $410-420/mt FOB, which are considered unworkable and not reflecting the current market.
Moreover, the Turkish market has been very weak and Turkish mills have not even been interested in buying scrap, switching to cheap Asian billet instead. One trading source said that for steel mills even a price at $400/mt CFR for pig iron is not good, which is $375-380/mt on FOB basis at best. Though prices for foundries are higher, they are still hardly above $410-420/mt CFR for September shipment.
This week, the Russian government has temporarily cancelled export duties for some steel products and raw materials for mills located in the Donetsk and Lugansk regions of Ukraine currently occupied by Russian troops, including for up to 80,000 mt of pig iron. But this has not resulted in intensified negotiations as “even with duties, the current market prices that customers are ready to pay are too low,” as one trading source said.