Posted on 26 Apr 2022
The disruption of pig iron imports from the Black Sea region, caused by Russia’s invasion of Ukraine, will accelerate the US steel industry’s longstanding need for regional raw material supply chains that Cleveland-Cliffs has already prepared for, CEO Lourenco Goncalves said April 22.
Goncalves said Cliffs’ strategy to further develop its own iron feedstock assets in the US was prompted by Russia’s previous aggression in Ukraine in 2014 before the company had purchased steelmaking assets and was solely focused on raw material production.
“We identified the massive share of pig iron coming to the United States from Russia and Ukraine as unreliable and at-risk, representing two-thirds of all US imports of pig iron at the time,” Goncalves told industry analysts during an earnings call. “It was pretty remarkable that no one was really concerned about it or working to reduce their dependence on both Ukraine and Russia.”
The previous conflict in Ukraine guided Cliffs in its decision to build its direct-reduced iron plant in Toledo, Ohio, which produces hot-briquetted iron using natural gas, he added. HBI can be used as a substitute for pig iron.
“We were the only company to act on this potential to restore our base metallic supply back to the United States,” Goncalves said. “Now that we are a steel-producing company, we are better off using our HBI in-house.
Cliffs feeds the HBI directly into its steelmaking blast-oxygen furnaces, which has allowed the company to produce the same amount of steel with less pig iron from its blast furnaces, according to Goncalves. This advantage allowed the company to idle its Indiana Harbor #4 blast furnace earlier this year, he added.
Goncalves said Cliff’s cost to produce HBI has been about $200/mt compared with current US pig iron import prices of about $1,000/mt, which provided the company with a cost advantage over its competitors.
The weekly Platts US pig iron import price was assessed unchanged at $940/mt CIF New Orleans on April 14, one month after peaking at $1,030/mt March 18, according to S&P Global Commodity Insights data.
In addition to pricing concerns, Goncalves said the second quarter “should be very challenging” for any US steel producers that previously were too heavily reliant on Russia and Ukraine for pig iron.
Ukraine and Russia accounted for a combined 62% of all US pig iron imports in 2021, according to US Census Bureau data.
Prime scrap access is also key
Goncalves said Cliffs’ growing access to prime steel scrap supply further supplements the company’s HBI advantage and reduces reliance on pig iron.
Cliffs’ annual prime scrap feed supply grew by 400,000 mt/year, increasing its merchant prime scrap market share to 20% from 15%, with its acquisition of Ferrous Processing and Trading last year, he said.
The Cleveland-based steelmaker has also had success securing closed-loop scrap supply deals with its automotive industry customers, he added.
“Both of these strategic moves, FPT and HBI, each underscored by our forward-looking view on the necessity of domestically sourced, high-quality iron units, have paid off in very short order,” Goncalves said.
Meanwhile, steelmaking competitors told analysts in separate earnings calls that they were working to reduce the amount of pig iron and prime scrap in their raw material mix to protect against volatility in those respective markets.
“I heard this week that they are decreasing the use of prime scrap in their own furnaces, so I will continue to use this argument to continue to convince my clients to give me more prime scrap,” Goncalves said.
Source:Platts
