After five months of roaring demand for pig iron in China, market sources have started to doubt whether buying activity there will continue.
In March, when the steel industry in Europe and the United States had only started to face the impact of the Covid-19 pandemic, China began to recover, resuming normal operating rates and starting to absorb almost all available spot pig iron volumes from the global market.
In January-June, China imported 1.96 million tonnes of pig iron. Of that volume, 648,000 tonnes came in June, when tonnages booked in March started to arrive, according to Customs data. Over the same period last year, pig iron imports into China totaled only 131,000 tonnes.
“These tonnages are crucial for the global pig iron market; but China, who makes a billion tonnes of steel per year, consumes all this with a blink of an eye,” one pig iron buyer said.
***Demand in China
ِHigh, stable demand in China has supported global pig iron prices, while demand in traditional outlets – in the United States and Italy – was almost non-existent due to slowdowns caused by the pandemic.
Fastmarkets’ weekly price assessment for high-manganese pig iron, export, fob main port Black Sea, CIS averaged $339 per tonne at the midpoint on Thursday August 27, up by $69 per tonne from $270 per tonne in early April. The Commonwealth of Independent States is the largest global pig iron supplier.
Meanwhile, the assessment for pig iron, export, fob port of Vitoria/Rio, Brazil averaged $345 per tonne at the midpoint on Friday August 28, up by $80 per tonne from $265 per tonne in early April. The South American country is the second-largest global pig iron supplier.
Most market sources agreed that Chinese demand will likely slow down.
“I think China is peaking, and I expect the Chinese will start using more scrap, and this will weigh on pig iron prices there,” one international trader said.
China will ban the import of all waste material from the next year for environmental reasons, but ferrous scrap will not be affected by the move and its import will be allowed from January 1, 2021.
*** Chinese buyers may switch from pig iron to scrap purchases
“As soon as imported cheap scrap will be available Chinese buyers may switch from pig iron to scrap purchases, “ another international trader said.
“Chinese steel producers are intended to reduce production at upstream levels before steelmaking, which are the most harmful for the environment,” one pig iron producer from the CIS region said. ”That is why they are searching for feedstock for steel melting; and if scrap is available and its price is more effective than pig iron, they can start switching to scrap.”
Fastmarkets has also heard an alternative point of view: that pig iron demand in China will continue despite a possible increase in scrap imports.
“A lot of mills in China now have partially or totally switched to steelmaking in electric-arc furnaces [EAFs], that will stimulate pig iron and scrap demand,” another pig iron supplier from the CIS said.
Even if steel scrap import is allowed, that will not impact pig iron demand because pig iron is a substitute product for scrap, it is a complementary product,” he continued. “Normally, when scrap consumption goes up, pig iron consumption goes up as well, and there is the same reason behind growth in both cases: higher steel output.”
***Iron ore
Another reason for lower demand for pig iron is a possible softening of the iron ore price, which would make imported pig iron less cost-effective compared with domestic production, several sources said.
Analysts at Fastmarkets have also argued that China’s appetite for iron metallics and semi-finished steel imports has been predominantly driven by the products’ price competitiveness versus domestic ferrous scrap and seaborne iron ore.
“Steel mills will keep the strong steel production and iron ore demand, so the iron ore prices are hard to drop too much, but some corrections could be expected in the near future,” a source in southern China said.
*** Fastmarkets’ index for iron ore
As of August 28, Fastmarkets’ index for iron ore 62% Fe fines, cfr Qingdao has averaged $122.85 per tonne this month – its highest since an average of $128.73 per tonne in January 2014 – amid firm demand.
The latest pig iron sales to China were booked late this past week at $۳۷۸ per tonne cfr to international traders for November shipment. That was well below offers from the CIS, which were reported at $390-395 per tonne cfr.
“Suppliers from the CIS were rather optimistic about the Chinese market, but now they have agreed to sell at almost $20 per tonne below their initial target level,” a third trader said. “That can mean that a demand slowdown is foreseen and they will sell while the buyers’ interest exists.”
This past week, China has also bought a Brazil-origin cargo at $374 cfr, and another Brazilian cargo was sold to an international trader at $340 per tonne fob for December shipment with a freight rate of about $30 per tonne. A small cargo was also booked from Japan at $377 per tonne cfr for September shipment.
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