Russia-Ukraine War may upset global pig iron trade balance

With Russia-Ukraine controlling a whopping 50% of the global pig iron trade at around 7 million tonnes (mnt), steel industry circles are concerned about the impact of the war on this commodity. The total global seaborne trade in pig iron is estimated at over 13 mnt per annum.

Russia saw a y-o-y 5.5% drop in pig iron exports on 2021 to 3.92 million tonnes (mnt) against 4.18 mnt in the preceding year, as per data maintained with SteelMint.

The drop was mainly on account of China's decreased imports brought on by production curbs.

On the other hand, Ukraine's exports of the same inched up 2.4% to 3.18 mnt (3.10 mnt) in this period.

Europe, USA and Turkey are the major importers.

Russia also exports about 3.5 mnt of HBI annually.

Probable impact of war

China-Russia trade may increase: It is expected that China-Russia trade in pig iron will increase as production curbs ease in the former. Global pig iron trade fell in 2021, dragged down by the drop in China's output curbs.

Top supplier Russia slashed the export tariff on basic pig iron by 50% in Jul'21 to $54/t from the previously envisaged $115/t. However, the export duty of 15% was retained to cool steel prices in Russia and increase supplies to domestic end-users, especially the construction industry.

This prohibitive export duty imposed by Russia impacted exports, curtailing shipments, especially to USA, and paved the way for other seaborne suppliers like India to ramp up exports.

Indian demand may rise: Indian pig iron demand may rise but Indian mills have limited spare capacities. Interestingly, India increased pig iron exports by over 50% y-o-y to 1.3 mnt from 0.86 mnt in CY'20 by catering to emerging markets such as South Korea and Turkey as well as ratcheting up shipments to traditional buyers such as USA. India's installed pig iron capacity is 7 mnt while the actual production is around 4.80 mnt.

Demand for scrap/billets may rise: Demand for scrap/billets is expected to increase in the seaborne market for two reasons. Exports from Russia may be impacted by sanctions. Secondly, scrap exports from USA and Europe may drop since they would want to satiate their domestic demand first.

Outlook

Global pig iron supply is uncertain in the short term with Russia having started military operations against Ukraine. Supplies from CIS countries will be disrupted for an indeterminate period especially since the separatist region of Donetsk Oblast in eastern Ukraine is a thriving steel production hub.

Steel mills globally will be impacted especially at a time global ferrous scrap prices are steep.