As of the second week of February, it seems that the expectations of the Turkish Foundrymen's Association (i.e. that the foundry sector will shrink by at least 40 percent year on year in 2009, judging by the tightening seen in local and global demand in the last quarter of 2008) has been already confirmed. Small scale foundries in the Turkish domestic market are hardly doing any business. While some of the medium and large scale foundries have been continuing their output activity with occasional production stops, the foundries working with sectors other than automotive and machinery (such as cement, elevator production) and some foundries working with municipalities on a contract basis have been implementing their orders. Although there have only been a few sales, the sales price of pig iron in the Turkish domestic market is currently at $340/mt excluding VAT. One of the main problems of the foundries in the Turkish domestic market is that they unable to obtain payments and are experiencing difficulties as a result of this.
According to the Italian traders' association Assofermet, Italian foundries halted their activities apart from spot purchases in January. In addition, it is thought that the foundries, having reduced their production by on average 30 percent, are unlikely to purchase material.
With Russian pig iron offers to Europe still at $300-310/mt FOB Black Sea ports, it is thought that Russian producers are sticking with these price levels in the hope of a strong position in price negotiations if supplies tighten up after a possible change in the current demand situation. However, it seems that demand, not price adjustments, is currently the most decisive factor in the pig iron market.
In Spain, it is estimated that the foundries' (that work mainly with the automotive industry) business has been reduced by 50 percent on average. According to a EUROFER statement, with an estimated 7-8 percent production fall (in Europe) in the sectors that use steel, the automotive industry will also be one of the sectors most affected by the recession. As a result, it seems that the Turkish and European foundries that supply the automotive sector and also those foundries that have built their hopes on a positive spring season will likely experience difficulties during 2009.
Chinese traders' purchases of raw materials registered increased speed before and after the Chinese New Year holidays, after Chinese iron ore stocks at the ports had fallen by 26 percent. Under the positive effect of the economic package announced by the Chinese government, Chinese traders have concluded a number of raw material deals in the past weeks - contrasting with the lack of activity seen in other global markets. Accordingly, Chinese traders have concluded deals for Russian and Brazilian origin pig iron with significant tonnages. It is reported that the price levels accepted by the Chinese traders have in the past week been at $315-320/mt C&F Chinese ports. With the uptrend in freight rates, the FOB prices of Brazilian offers for the Far East have softened to $270/mt FOB southern Brazil. It is observed that the Brazilian producers, considering that stock levels are high in the US and that the US is therefore unlikely to buy material until late May, are trying to benefit from Chinese demand
India is another country that has turned its attention to the Chinese market. According to market players, Vizag Steel may decrease its export price from the current level of $300/mt FOB to around $290/mt in the export tender which will be held on February 25.
However, it is not certain whether China will maintain its current purchasing activity. Considering that Chinese traders have lately only been accepting mid-March shipments, pig iron producers will likely face some difficulties in determining long-term production and price levels.
Will the expected recovery in spring become a reality? It seems that the answer to this question will depend on a number of factors: on the general dynamics of the global pig iron market, on whether the global market will regain its confidence under the influence of the various economical packages, and, the last and most important factor: whether the supply-demand balance will finally tilt towards the demand side.