Miller on scrap: Pig iron cost vs. #1 Busheling

The use of pig iron for this purpose has come at a price since its manufacturing and logistical costs have generally exceeded the cost of using prime scrap.

This excessive cost has been much more pronounced since 2022 when the Russian invasion of Ukraine occurred and the US sanctioned pig iron imports from that country.

At the time of the imposition of sanctions, it was estimated the US steel industry relied on Russia and Ukraine for over 60% of their requirements. Needless to say, the cost of pig iron severely increased, especially in relation to prime scrap.

Going forward to 2024, the price of HRC started to decline and so did other steelmaking raw materials, including ferrous scrap.

However, due to sourcing issues brought on by the exclusion of Russian imports and the degrading of shipments from Ukraine, pig iron prices did not fall along with scrap. This resulted in an increasing spread between the cost of pig iron and prime scrap.

In fact, until the start of Q4’24, the delivered cost of imported pig iron exceeded the cost of #1 Busheling by over $100 per gross ton.

Gap narrows

The gap between these two products started to narrow during Q4’24, as competing offers from India were received by American users. The main supply base in Brazil came under pressure to match these offers.

The strengthening of the US dollar also had a role in the decline of pig iron prices. In addition, the massive exports of steel from China have weakened international demand.

What’s happening now

By the start of 2025, the gap had been narrowed to ~$62 per gross ton (gt).

As ferrous scrap prices increased by ~$20/gt in January and another ~$40/gt in February, the spread has been virtually neutralized.

Based upon the most recent purchases from South Brazil for basic pig iron at $395 per metric ton (mt) FOB Rio/Vittoria, the CFR cost to New Orleans has declined to about $420/mt.

This figure was as high as $475/mt as recently as Q2’24. In order to compare this with the delivered cost of prime scrap, other procurement costs must be considered.

These include vessel discharge, custom and port charges, barge freight, storage, ground freight, shrinkage, and financing costs. Each steelmaker has its own set of expenses for these costs depending on the mill’s location.

For most buyers located along the lower Mississippi Valley, a reasonable estimate of these costs brings the delivered price of pig iron based upon these assumptions to $467/gt.

The February price of #1 Busheling in this region rose to ~$465/gt, thereby essentially evening the playing field between the two materials.

For pig iron delivering farther north to the Upper Mississippi and Ohio River locations, the costs jump to ~$475-480/gt.

The price of busheling in these regions for February is ~$440-450/gt. So, the gap for these users has significantly narrowed. This narrowing could lead to more demand for pig iron.

It should be noted the pig iron steelmakers are using presently was purchased in October/November 2024 when pig iron prices were higher. As less expensive material is delivered, users will then realize the savings vs. scrap.

Outlook

In a recent contact SMU made with an executive in the Brazilian pig iron trade, he was of the opinion pig iron prices should rise by $20-40/gt on future sales.

Of course, this will depend on other prices offered from other pig iron exporting countries, currency fluctuations, and international business conditions, which were the main causes of the recent erosion of pig iron prices.