Global BPI suppliers lost their support from China in 2021. In 2021, the global pig iron market suffered a slowdown in demand, which was particularly noticeable with regard to buying activity from China. The restrictions on crude steel production and power supply limitations announced by the Chinese authorities, aiming to curb environmental pollution during the winter heating season and ahead of the Beijing Winter Olympics 2022, caused a reduction in crude steel output in China. Specifically, according to the National Bureau of Statistics (NBS), in the January-November period of 2021 China’s crude steel output totaled 946.36 million mt, down 2.6 percent year on year. This had a significant impact on demand for import pig iron. Specifically, during the first nine months of the year, China imported 1.6 million mt of pig iron, versus 4.3 million mt in the same period of the previous year. In particular, in the January-October period of 2021, Brazilian pig iron exports to China slumped by 85.6 percent year on year to 229,000 mt, compared to 1.59 million mt in the same period in the previous year. Likewise, Russia’s pig iron exports to China declined by 42.6 percent year on year to 351,000 mt in the same period. Meanwhile, Ukraine’s pig iron exports to China declined by more than 90 percent year on year to 50,670 mt in the January-November period of 2021.
The economic viability of imports over domestic supply had a further negative impact on import pig iron purchases by China. Higher offers from global suppliers, stemming chiefly from exorbitant freight rates made imports largely unattractive. Specifically, up to August last year local pig iron in China was available at prices at least $60/mt lower than import pig iron. However, in September, with new stricter limitations having come into force in China, local pig iron prices rose noticeably, causing some rise in buying interest in import pig iron.
Pig iron imports to the US market in 2021 saw a contrary trend to China. In the January-October period of 2021, pig iron imports to the US totaled 5.2 million mt, rising by 39 percent year on year. The main reason for such a development was the significant increase in steel production in the US. According to the World Steel Association, in the January-October period last year US steelmakers produced 71.7 million mt of crude steel, up 19.6 percent year on year. On balance, the decrease in shipments of global pig iron to China was partially offset by the rise of 1.5 million mt in pig iron imports arriving in the US in the January-October period last year.
Global pig iron and finished steel prices both hit record levels in 2021. With BPI prices reaching record levels in 2021, the pig iron exports of global suppliers also increased significantly. In particular, in the January-October period of 2021, Russia’s pig iron exports rose by almost 60 percent year on year to $1.57 billion, while Ukraine’s pig iron exports in the same period increased by 83.9 percent year on year to $1.37 billion. Brazil’s pig iron exports rose by 27.9 percent year on year to $1.17 billion. Nevertheless, although ex-CIS and ex-Brazil BPI offers reached levels as high as $650-655/mt FOB Black Sea and $670/mt FOB respectively during 2021, by the end of the year these prices had fallen almost to the levels of the previous year, namely to $500-505/mt FOB Black Sea and $500/mt FOB Brazil southern ports.
The rate of increase of HRC prices in the US in 2021 exceeded the rate of global BPI price rises. High margins in the US made it possible for domestic steelmakers to accept BPI prices even when they were considered to be overvalued. In particular, with HRC domestic prices in the US, the main importing country, reaching record levels in 2021, the average spread between HRC and import BPI prices exceeded the average figure in 2020 by $900/mt.
Global BPI suppliers did not miss their chance to gain support from developments in the iron ore segment. Iron ore, which is the main raw material in pig iron production, jumped to a record price of $235/mt in May 2021. However, in March , with the Chinese government issuing a second-level pollution alert urging steelmakers and coking plants to cut production, iron ore demand in China slowed down significantly, with iron prices plummeting to $88.5/mt by November.
Additional support for BPI suppliers’ positions came from the energy crisis. Due to the exorbitant prices of natural gas, which is used in the production of DRI (one of pig iron’s counterparts in the steelmaking process), some mills (especially those in Europe) partially shifted to bookings of pig iron instead of producing DRI. The trend is expected to gather pace in the coming years, as the global energy crisis has worsened recently, while carbon costs are rising on the back of the shift towards green steel production.