CRU: Pig Iron in Short Supply as Buyers Search to Replace Russian Exports

Iron ore

European steelmakers look to replace Russian and Ukrainian iron ore supply

• Ukrainian iron ore supply has been severely affected since the war started, due to logistical disruptions.
• The main iron ore port of Yuzhne has now stopped operations while Black Sea freight insurance premia increased on the back of growing seaborne risk. Landborne exports to Europe have been largely reduced due to rail constraints.

Ukrainian iron ore production is affected, but continues

• Fighting has reached the Zaporizhzhia Oblast region where production has halted.
• Key iron ore production in the center of Ukraine remains largely active, but mine stocks have risen quickly due to logistical constraints.
• Russian forces have advanced towards Kryvyi Rih, edging closer towards the core of iron ore production.

Europe seeking new suppliers

• European steelmakers have begun to look for replacement options to Ukrainian and Russian iron ore and pellet supply.
• The most promising candidates are pellet imports from India and the USA, with lump being imported from South Africa and potentially Australia.

Russian iron ore export routes disrupted

• Russian iron ore is consumed largely within the domestic market. Russian iron ore export routes to Finland and Eastern Europe have been disrupted as a result of sanctions.
• Turkey and China remain open to trade. However, they are not expected to absorb displaced iron ore from Russia.

Coal

Global coal and energy prices rise as buyers look for alternatives

• Global buyers have been attempting to source coal away from Russian supply since the war began, but markets are tight.
• Market uncertainty and sanctions have driven oil and gas prices higher amid supply constraints from Russia.

Coal buyers looking for alternatives to Russian supply causing prices to soar

• Since Russia’s invasion of Ukraine, coal buyers across the world have been looking for alternatives to Russian supply, causing prices to climb as markets have already been very tight.
• Australian premium HCC prices jumped to $615 /t, FOB Australia from ~$450 /t at the end of February.
• Thermal coal prices have soared globally. The biggest changes have been in Europe where they more than doubled in just over a week. European 6,000 kcal/kg benchmark jumped from $185 /t, CIF ARA at the end of February to $440 /t in early-March.

Global oil and gas prices increased due to market uncertainty and Russian sanctions

• Global oil and gas prices have also soared amid worries about supply constraints from Russia due to sanctions and retaliation. Similarly, to other commodities, international buyers have been looking for alternatives.
• Brent crude prices jumped to $137 /bbl from ~$100 /bbl before the war, but have retreated to ~$115 /bbl recently on expectations of production increases from other key exporters.
• European Dutch TTF gas prices soared from ~€70 /MWh before the war to over €260 /MWh, but have also recently fallen back to ~€160 /MWh.

Metallics

Pig iron prices climb higher following disruption to CIS supply

• Pig iron prices have increased more so than scrap, as U.S. and European buyers are strongly reliant on CIS supply.
• Buyers in Europe and the U.S. have scrambled for supplies and are venturing as far as India to book volumes, only to be discouraged by sharp volatility in freight rates.
• Metallics prices are expected to rise further in the coming months as supplies remain tight.

Russian metallics are hard to substitute

• The substitution of Russian metallics supplies has proven to be nearly impossible. This has caused pig iron prices in Brazil and the U.S. to surge by $280-310 /t m/m, thereby reaching record highs.
• Lead times for Brazilian pig iron have moved into May, with several suppliers placing a temporary moratorium on new offers.

Longer term shortage for low phosphorous pig iron

Suppliers have warned of a longer-term shortage of low phosphorus pig iron in the market, which will force mills to source lower grades and quantities of pig iron in the coming months.

Bulk Ferroalloys

Ukrainian ferroalloy production down, and exports curtailed

• The war in Ukraine has restricted the ability of Ukrainian ferroalloy producers to participate in global trade.
• European silicomanganese prices rose by 29% w/w last week driven predominantly by steel mills seeking to replace lost Ukrainian contract volumes and traders looking to secure 2022 Q2 supplies.

Ukrainian silicomanganese production cut

• Ukraine is a major supplier of silicomanganese and home to the largest European manganese alloy producer – Privat.
• Privat is believed to be still operating its largest operation, Nikopol. However, Privat’s Zaporizhzhia facility has closed to keep employees safe.

Ukrainian exports curtailed

• Ukrainian export of ferroalloys has curtailed nearly entirely as the Black Sea ports of Odessa, Yuzhne and Mariupol, via the Sea of Azov, are closed.
• Land-based exports of ferroalloys are reportedly stockpiling material in southern Poland for contract clients.

Canada removes Most Favored Nation Status from Russia and Belarus

• Canada has removed the Most Favored Nations status from Russia and Belarus, with the implication that imports from these countries will now incur a 35% import duty.
• While Canada imports relatively small volumes of manganese alloys and FeSi from Russia and Belarus, a bigger risk may loom if the U.S. were to follow.

(Editor’s note: The Biden administration took action on Friday, after this writing, to follow Canada’s lead and revoke Russia’s most favored nation status.)

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