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Pig iron, scrap, steel trade hit by electrode shortage

The steel industry’s current hot topic, tight electrode supply and higher pricing, threatens to cut steel output and raise mill costs.

This is leading traders to debate the impact across various steel mills and applications.

A cut in steel output due to shortages of the raw material is a real fear, while higher costs are already being reflected in spot electrode pricing, up over tenfold in some cases.

A beneficiary may be merchant pig iron, and direct-reduced iron/hot-briquetted iron, used as a supplement to aid steelmaking at furnaces, and reduce impurities in scrap.

Interest in how pig iron supply could help bridge iron output and potentially cut electrode consumption rates, especially at scrap-fed mini mills, was debated last week in Germany at an industry event.

The US pig iron imports are the highest since the 2007-08 financial crisis, and over that time Russia and Ukraine have replaced Brazil as the largest seaborne pig iron suppliers.

There is a temporary shortage of electrodes. While the steel industry has yet to be convinced it is purely down to Chinese coal mines being shut or idled, a crucial piece of overall steelmaking raw materials is coming into focus.

Hurricane Harvey hitting the US Gulf and other industry factors are affecting electrode supplies stemming from petroleum coke output used in needle coke, which goes into the electrodes, according to the World Steel Association.

The steel producers’ group has been prompted to conduct a review, and may not form a view until early 2018, it said.

Currently, worldsteel said it is not in a position to estimate how long the electrode shortage and its impact on the steel industry will last.

The broad market consensus seems to be that electric arc furnace mills which charge scrap and metallics are affected more due to demand for larger electrodes produced via needle coke from petcoke.

Smaller and medium-sized EAF furnaces may make do with smaller electrodes from coal-based needle coke.

Production of needle coke in China has fallen partly due to environment- and safety-related closures.

While electrodes from coal are suitable for ladle furnaces used to convert steel from blast furnace operations, EAFs may be affected too, said Continuous Improvement Experts managing partner Jeremy Jones, an industry consultant and distinguished member and fellow with the Association for Iron & Steel Technology.

Smaller EAF producers have been more reliant on electrodes from the spot market, rather than long-term contractual supply, and spot prices have surged, Jones said in an interview. Smaller EAFs can use electrodes from coal-based needle coke.

Ferrous scrap charged with pig iron and DRI/HBI can allow for reduced electrode consumption, but the results may vary, Jones said. The shortage of needle coke used by electrode manufacturers, and electrodes too, sourced mainly from China and India could prompt a supply-side reaction at current prices.

India may increase output if prices stay high, Jones said.

Traders and other market participants said steel trade is being affected partly as the higher cost of producing steel due to the rise in electrode prices is being reflected in forward offers.

Pig iron traders say this could drive up demand for metallics and support billet and steel prices. This will determine the quantities they will allocate for merchant pig iron sales too.

A pig iron trader with a large group said the quantity allocated for merchant pig iron sales are constantly dependent on steel demand and margins. This is especially true for higher value-added steel products, allowing for higher profits.

Iron ore and scrap prices falling in September and electrode shortages gaining prominence, a holiday early October in China prevented bigger trade flow in markets such as pig iron and billets, traders said last week. The market may reach deadlock for a further few weeks, a pig iron trader said.

Source: Platts

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