According to the latest indications, pig iron market players' previous expectations of a possible improvement in the spring months are unlikely to be fulfilled in the near future.
With no improvements seen in demand nor as regards the global economic downturn, positive developments are unlikely to be seen in the pig iron markets in the short term. Lack of confidence in the markets and the expectation that prices may show certain variations have made it more difficult for both producers and traders to to foresee the future trend of the markets.
At the meeting held last week by the IPIA (International Pig Iron Association) aimed at evaluating the current situation, future prospects were not deemed to be the most brilliant by the traders and producers who attended the event in question. According to the pig iron producers at the meeting, the most critical factor is the contract price which will be determined during the long-term contract negotiations on iron ore and coal prices.
Having tried to keep their prices stable during the last weeks of February, in March Russian mills have reduced their pig iron offers to the range of $260-280/mt FOB Black Sea for European buyers, due to the overall continuing demand problem as well as China's (the only active buyer previously) absence from the markets as a buyer. However, according to the information received from one mill, sales may be concluded below the above range depending on promptness of purchase and tonnage sizes. A European trader recently concluded a booking for nodular pig iron at the level of $275/mt FOB. Meanwhile, since Chinese traders have lowered their price expectations to $265-270/mt CFR, it is heard that Russian mills may conclude sales at the level in question once the freight cost is reasonable and for actual buyers. Also, Ukrainian producers have cut their offers to levels of $230-240/mt FOB, and it is reported that some traders have given offers at $220/mt FOB for large tonnages.
In Brazil which is another major pig iron producer, total production capacity is only at the level of ten percent following further production cutbacks. The US market, which is the most important buyer of material from the northern Brazilian mills, will not make purchases at least until June, and thus there is an increased probability that three to four blast furnaces in northern Brazil will be shut down completely within two to three weeks. In southern Brazil, producers have lowered their offers by an average of $30/mt due to the lack of significant demand from Chinese buyers, and have adjusted their export offers to $230/mt FOB southern Brazilian ports. This week, a pig iron cargo of 10,000 mt has been booked to the Far East at the level of $230/mt FOB for prompt shipment.
It seems that at present there is hardly any demand for basic pig iron in the Turkish domestic market. Since steel producers have been experiencing problems even in terms of scrap prices, current basic pig iron offers are at high levels in their view. In the local market, one mill's sales prices of basic pig iron stand at the level of $290/mt + VAT.
In the Turkish market, as foundries have been operating at 30-40 percent of production capacity, they have continued to purchases only in order to satisfy their needs. It is observed that local Turkish foundries have been holding back from making more raw material purchases than necessitated by their orders, due to both their financial situations and their lack of confidence. Many foundries that are working single shifts have preferred to operate at night due to the lower night-time electricity rates. In the local Turkish market, South African origin nodular pig iron is currently sold at the level of $550/mt ex-warehouse.
A similar situation to that seen in Turkey has continued to be observed with regard to European foundries. Many foundries in the Benelux region have been working at 20 percent of production capacity and, in addition, a new working regime according to which white-collar workers will work four days a week has started to be applied. Meanwhile, Polish foundries have in general been working just three days a week.
There are two scenarios for the future development of the pig iron market. In the first scenario, a rebound could be seen in the market at the start of the summer on the back of the short-term effects of economic packages and new arrangements implemented by governments. Above all, the most important factor will be the new prices which emerge from the annual raw material contract negotiations. In the second and more pessimistic scenario, the market will hardly register any recovery until the fourth quarter of the current year.
It is likely that late March and April will give observers a clearer idea on whether an improvement in the market may be expected in the short term or will be delayed instead to a later date.