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May. 2022
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The Navigatiir

The Navigatiir - Featured Articles

Russia-Ukraine Conflict Sparks Pig Iron Supply Headaches for U.S. Steelmakers

Pig iron, or the lack of it thanks to Russia's war with Ukraine, has been a topic of discussion among the United States' top steel producers. At least three major steelmakers recently reviewed their responses to the situation.

Russia and Ukraine are among the world's top exporters of pig iron, and the disruptions caused by Russia's invasion of Ukraine have sent steel producers scrambling for the key raw material.

The global merchant trade in pig iron typically amounts to about 12 million tons per year, with as much as 8 million tons coming from Russian and Ukrainian mills, Steel Dynamics Incorporated (Fort Wayne, Indiana) (NASDAQ:STLD) (Fort Wayne, Indiana) Chief Executive Officer Mark Millett said during the company's recent earnings conference call. In 2021, the U.S. imported 6 million tons of pig iron, of which 2 million tons were shipped from Russia and 1.68 million from Ukraine, according to FastMarket's metalbulletin.com. Pig iron prices have soared since the start of the war.

Industrial Info is tracking projects that have been affected by the Russia-Ukraine war, ranging from delays in construction and cancellation of project investments to projects outside of the region that are moving forward to supplement lost manufacturing or commodities. Subscribers to Industrial Info's Global Market Intelligence (GMI) project database can click here to learn more.

At least three U.S. steelmakers remarked on the situation during their first-quarter earnings conference calls.

Industrial Info is tracking more than $5.75 billion worth of steel mill projects now under construction in the U.S. See graph below.

Steel Dynamics: Industry Turns to Brazil, India and Scrap Supplies

In addition to the "the almost unimaginable human tragedy of Ukraine ... the consequences to our industry have obviously been massive," Millett said. "We scrambled as an industry to cover our needs for the rest of the year into 2023 from other sources, and we were fairly successful in procuring material from Brazil and from India, and at the same time changing our operations and processes to lower the need and requirement for that pig iron."

Typically, he said, about 22% of Steel Dynamics' raw material input is pig iron, but the company has managed to reduce that portion to about 14%, in part by using more scrap metal.

Millett said, "Our flat roll operations have reduced ... pig iron usage while maintaining the highest level of steel quality through changes in our operating practices and the help of our metals recycling team in sourcing alternative inputs. We have sufficient resources for our steel production to continue operating uninterrupted."

Among other things, the company is making use of its Iron Dynamics liquid pig iron facility at its Butler, Indiana, steel division, which now supplies almost all of the mill's requirements, Millett said.

Also, "during the last 18 months, our recycling and steel teams have worked closely (together) in developing a higher-quality shredded scrap that can be used in place of prime scrap," Millett continued. "The combined effort resulted in our Butler Flat Roll Steel Division reducing its need for prime scrap from 65% of its mix to only 40% while achieving the same steel qualities."

He said the company was in the process of implementing the use of higher quality shredded scrap at its Columbus, Mississippi, and Sinton, Texas, operations to reduce costs.

This year's capital expenditures include investments to start construction on four new flat-roll steel coating lines, including two at Sinton and two at the company's Heartland facility in Terra Haute, Indiana. The company expects to invest $500 million on the four lines, comprising two paint lines and two galvanizing lines, with one paint and galvanizing set in Sinton, and the other set in Terra Haute. The new lines will increase Steel Dynamics' steel coating capacity by 540,000 tons per year. Subscribers to Industrial Info's Global Market Intelligence (GMI) Metals & Minerals Project Database can click here for the related reports.

Nucor Navigates Supply Disruptions

Nucor Corporation (NYSE:NUE) (Charlotte, North Carolina) has been able to manage the supply disruption to the seaborne pig iron market through a variety of tactics, according to its president, Leon Topalian.

Pig iron makes up roughly 10% of Nucor's metallic supply in a typical year, with Russia and Ukraine making up half that amount, Topalian told industry analyst during the company's first-quarter earnings conference call on March 21.

"However, at the onset of this war, we immediately ceased all purchases of pig iron and any other raw materials from Russian suppliers," he said. "We could do this without disrupting customer supply or quality because we have worked over the years to effectively manage the risks related to our raw material needs."

He continued, "We have several advantages that are enabling us to manage through this disruption, including good long-term relationships with numerous pig iron producers globally (and) reliable DRI (direct reduced iron) production capabilities in Trinidad and Louisiana, that are particularly helpful in this environment; the ability to increase our production of low-copper shred (scrap), and continue to invest in additional technologies for high quality metallics...."

In April, Nucor said it will build a new rebar micro mill in Lexington, North Carolina. This would be Nucor's third rebar micro mill, joining its existing micro mills in Missouri and Florida, the company said in a press release. The Lexington mill is expected to cost approximately $350 million and have an annual capacity of 430,000 tons. Subscribers can click here for the project report.

Cleveland-Cliffs: Prepared for This Day

Cleveland-Cliffs Incorporated's (NYSE:CLF) (Cleveland, Ohio) outspoken chief executive, Lourenco Goncalves, offered an I-told-you-so response to the supply disruption, saying his company has been long prepared for this day.

"The Russian aggression toward Ukraine has made it absolutely clear to everyone what we at Cleveland-Cliffs have been explaining to our clients for some time: Overly extended supply chains are weak and prone to break down, particularly steel supply chains that are dependent on imported feedstock," he said in a March 22 press release. "No steel company can produce highly specified flat-rolled steel without using pig iron, or iron substitutes like HBI or DRI, as feedstock. Cleveland-Cliffs produces in-house all the pig iron and HBI we need, right here in Ohio, Michigan and Indiana, using iron ore pellets from Minnesota and Michigan."

Of the seven major flat-roll steel producers in the U.S., only Cleveland-Cliffs eschews imported pig iron, Goncalves said during the company's earnings conference call.

Following Russia's invasion of the Crimean Peninsula in 2014, "we identified the massive share of pig iron coming to the United States from Russia and Ukraine as unreliable and at risk ... It was really remarkable that no one was really concerned about it or working to reduce their dependence on both Ukraine and Russia."

The import situation played a role in the company's decision in 2017 to build its Toledo direct-reduced, hot briquetted iron (HBI) facility, Goncalves said, in an attempt to supply the domestic electric arc furnace (EAF) market with "a more reliable and carbon-friendly source of metallics." For more information, see April 11, 2018, article - Cleveland-Cliffs Breaks Ground on Hot Briquetted Iron Plant.

"In the seven years following the invasion of Crimea, we were the only company to act on this potential reshore of metallics supply to the United States," he said.

The company, which had transitioned from an iron producer to a steelmaker, now uses its HBI in-house allowing it to reduce its blast furnace footprint while maintaining production levels, Goncalves said. Using natural gas, "our cost to produce HBI has been just over $200 a ton. That compares very favorably to the $1,000-per-ton price tag for pig iron imported into the United States these days."

Industrial Info is tracking more than $1 billion in active capital project investments by Cleveland-Cliffs. This includes upgrades to its Burns Harbor Steel Works in Indiana. The project comprises upgrades on existing blast furnaces, walking beam furnace and hearth mill, along with other improvements. Subscribers can click here to learn more.

Boffo First-Quarter Steel Earnings

Despite the pig iron problem, all three companies reported record or near-record earnings for first-quarter 2022.

Industrial Info's North American Project Spending Index shows Metals & Minerals Industry spending in the U.S. was $31.2 billion as of March, up 9.67% from the same period in 2021. For all of North America, Metals & Minerals Industry spending was up 5.1%.


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