Having applied production cutbacks since the last quarter of 2008, pig iron producers have continued to experience difficult times in the first month of 2009, against the background of the impasse observed in the finished steel markets and problems relating to finance. As an additional problem, foundries which have been predominantly supplying the automotive sector have lowered their production by 50-60 percent due to the global shrinkage seen in the automotive sector.
Following recent purchases in the Turkish market, high quality scrap which substitutes for basic pig iron has reached a price range of $295/mt CFR. The narrow gap between basic pig iron and scrap prices has made it difficult for pig iron producers to determine their prices.
Foundries in Turkey, which widely serve the automotive sector, have been delaying their pig iron purchases on the back of the significant contraction of production levels. One domestic producer has been offering basic pig iron, of a higher quality compared to imported basic pig iron, at at least $30/mt higher than the price of imported material. However, any possible change in scrap prices, even though none is expected for the time being, would make it difficult for the producer to conclude pig iron sales at the level in question. For import material, basic pig iron offers given from Russia to Turkey are at the level of $315-320/mt C&F for February shipments.
Meanwhile, the general overview for the European markets, where a contraction has been seen as purchases have been delayed for the same reasons as mentioned above, is as follows;
Should most of the foundries in Germany, which concluded raw material purchases at the end of 2008, continue to produce at their current volumes, it is not expected that these foundries will purchase significant amounts of pig iron from the domestic market until June. Offers given from Russia to Germany for BPI have been standing at the level of $310/mt FOB Black Sea, while offers for foundry pig iron have been in a price range of $350-360/mt CIF.
Moving to Italy, the high inventory levels of the Italian foundries, due to purchases concluded in December 2008, mean that they will be able to satisfy their needs from their stocks for a couple of months. Ukraine origin basic pig iron offers given to Italy have been at the level of $300/mt CIF.
It is heard that the production cutbacks implemented by many Brazilian producers in the southern and northern regions of that country since the last quarter of 2008 will continue to be seen in the first three months of 2009 as US buyers halt their purchasing activities. It is expected that within two weeks the production cutback rate in southern Brazil will rise to 90 percent from the current 70 percent. Offers given from southern Brazil to the US market have been at the level of $300/mt FOB, though it is unlikely that buyers from this latter market will seek to make purchases before the end of February. Nevertheless, as China is anxious to conclude bookings ahead of the Chinese New Year, offers are heard from Brazil to China. The offers in question are at the level of $300/mt FOB northern Brazil, while, due to the freight advantage, levels of $300/mt C&F China are also mentioned for large tonnages. However, should the iron ore contract prices (yet to be announced but expected to decrease by 30-40 percent) fail to show any decrease, it is likely that pig iron producers will find it very difficult to step up their production volumes.
The foundries which serve the agricultural sector by casting machine parts and which also supply the ongoing wind turbine projects in Europe have been busy purchasing raw materials. Against the contraction seen in the automotive sector, positive developments are observed in these sectors where Southern African origin nodular pig iron is used. Offers given for nodular pig iron to Europe have been at the level of $600-620/mt ex-warehouse.
No major activity is expected in the pig iron markets up to the end of January; meanwhile, the mills' production cutbacks in the short term and possible changes in scrap prices will be the main factors influencing the prices of pig iron.