Ukraine War Drives Shortage in Pig Iron, Pushing Steel Prices Higher
Russia, Ukraine were top suppliers of pig iron used to make steel in the U.S.; steel companies look to Brazil, India
Pig-iron prices are surging, helping reverse a recent decline in the U.S. steel market.
Pig iron, a raw form of the metal used in the production of steel, has grown scarce in the weeks following Russia’s invasion of Ukraine, industry executives said. Two-thirds of the 6 million metric tons of pig iron imported by the U.S. last year came from those two countries, according to the U.S. Census Bureau, but the fighting brought Ukrainian shipments to a halt and importers have stopped ordering from Russia, steel executives said.
The crunch has steelmakers seeking out new suppliers in Brazil, India and elsewhere, in the midst of tightening U.S. supplies of scrap steel. Meanwhile, prices for pig iron have nearly doubled.
“There is really a concern about the availability of materials,” said Parth Jindal, director of JSW USA, a unit of India’s JSW Steel Ltd. 500228 -1.50% “The lack of pig iron and the lack of scrap in the U.S. has really pushed up prices.”
Pig iron—ore reduced to molten iron that is cast into briquettes—is mixed with scrap in electric furnaces and melted into new steel. About 70% of steel produced in the U.S. is made in electric furnaces, making the U.S. particularly reliant on scrap steel and pig iron. U.S. pig iron imports last year were 20% higher than in 2019.
Russia and Ukraine are the world’s largest sellers of pig iron, and in most years, the U.S. steel industry is the world’s biggest buyer. Since January, the price of pig iron in the U.S. has increased by 74% to $940 a metric ton, according to S&P Global Commodity Insights.
To offset more expensive pig iron, steelmakers said they are relying more on scrap steel from manufacturing waste, shredded cars and other debris. That demand has driven the price of high-quality scrap 51% higher since February, and set off a new round of price increases for finished steel, reversing months of declines. The spot-market price for the industry benchmark hot-rolled coiled sheet steel is up 48% since the beginning of March to $1,480 a ton, according to S&P Global price surveys.
“The rise in steel prices is related directly to the Russia and Ukraine war,” said Philipp Englin, chief executive of World Steel Dynamics, a market consulting firm in New Jersey.
Indiana-based steelmaker Steel Dynamics Inc. in late February was tracking what would be its last shipload of pig iron from Russia when the country invaded Ukraine. That shipment arrived March 3, but the company’s contract for additional shipments from Russia has been canceled because of the war, said Chief Executive Mark Millett.
Mr. Millett said that Steel Dynamics switched its pig iron purchases to Brazil, and the company has been able to reduce its overall usage of the commodity by improving its scrap-processing operations. By doing a more thorough job of removing copper, stainless steel and other metal that contaminates steel scrap, he said, Steel Dynamics can upgrade lower-quality scrap.
Pig iron accounts for about 10% to 20% of the raw material used to make steel in an electric furnace. Mr. Millett said that Steel Dynamics’ pig-iron usage has dropped to the lower end of that range by improving the processing of the company’s scrap.
“We have an adequate supply,” he said. “We have modified our operation to use a little less pig iron. ”
Most pig iron is produced in blast furnaces that are heated with coking coal, a type of processed coal that burns hotter and more efficiently than regular coal. Pig iron’s unusual name dates to the earliest days of steel mills, when liquid iron was poured into troughs and molds dug into the dirt floors of mills. The configurations resembled a sow with suckling piglets, and the name “pig iron” stuck.
JSW’s Mingo Junction, Ohio, mill gets its pig iron from its parent company in India. Mr. Jindal said JSW typically hasn’t sold pig iron outside of India, but the global shortages are changing that. The steelmaker’s operations in India can produce about 1 million metric tons a year of surplus pig iron for the export market, he said, and JSW recently sold a couple of shiploads of pig iron for United States Steel Corp.’s X -0.78% , Big River Steel mill in Arkansas.
Nucor Corp. , the largest steelmaker in the U.S. and a purchaser of 2.5 million metric tons of pig iron annually, said mills in China, Japan, the United Arab Emirates and Canada also have started offering pig iron.
“It’s more of a cost issue than an availability issue,” said Doug Jellison, Nucor’s executive vice president of raw materials.
American steel companies using blast furnaces typically use their molten iron to make finished steel, rather than sell pig iron to competitors. U.S. Steel recently said that it intends to devote one of the blast furnaces at its Gary, Ind., mill to produce pig iron for its Big River mill. U.S. Steel plans to double the annual steel production capacity at that mill to 6.3 million tons in 2024.
The mill’s expansion is part of the 10 million tons of additional production capacity for flat-rolled steel that is scheduled to enter service in the U.S. over the next two years. The build-out will likely keep prices for pig iron and scrap elevated for U.S. steelmakers, industry executives said.
“They need the material,” said Mark Kaplan, president of Consolidated Mill Supply Inc., an Illinois distributor of pig iron. “But companies either can’t afford it or they can’t find it.”