Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

The growing use of ore-based metallic scrap substitutes such as hot briquetted iron (HBI) as raw material in electric arc furnace (EAF)-powered mills, has put the spotlight on voestalpine’s Texas HBI plant as well as Cleveland-Cliffs’ HBI plant in Ohio. 


Cliffs commenced HBI production at almost 2mn nt (1.9mn mt) in December with third-party sales slated for late March and its most recent plan cites developing more domestically sourced, high-quality iron ore feedstock while using natural gas in its HBI production.


Voestalpine, on the other hand, exported more than 1mn nt or about 50pc of its annual capacity, from its HBI plant in 2020 as domestic demand softened amid the COVID-19 pandemic and as China absorbed major quantities. The European steelmaker’s Corpus Christi plant is now a benchmark for quality on HBI as the company’s product has advantages in certain chemical and physical properties. However, in the past, the materials’ status was impacted by developments, mainly in Venezuela, due to its former standing as the main North American supplier. 


The rise of EAFs

The rising EAF capacities across the US offer huge potential for HBI producers, according to industry sources who gave the following examples of how these capacities are likely to impact HBI prices moving forward.


Steel Dynamics (SDI) shipped 10.7mn mt of steel in 2020 and will hold an annual capacity of 3mn mt at its Sinton, Texas EAF once commissioned in mid-2021. The site is forecast by many regional sellers to require monthly ferrous scrap of about 100,000gt in the open market along with the imports planned from Mexico. 


In H2 2021 this EAF is likely to ramp up its output with an average monthly production forecast at 225,000nt in 2022. The flat-rolled mill will require ample scrap alternatives, boosting demand, especially for high-grade pig iron. Monthly pig iron needs for this EAF are projected to comprise 20-25pc of intake feed with HBI representing approximately 7-12pc.


ArcelorMittal will potentially be another large HBI consumer to feed its 1.5mn nt EAF at AM/NS Calvert, which would feasibly and logistically be supplied by the nearby voestalpine plant or possibly Cliffs. However, the initial plan was that Cliffs would primarily supply to Northern markets or closer to its Toledo production site.


Increasing EAF production out of Corpus Christi will also impact consumers in Mexico along with scrap pricing dynamics. Considerable volumes of scrap will be sourced from the US’ southern neighbor and while it is still too early to determine the ultimate impacts on scrap markets, Mexican customers have already expressed concern. 


Mexico is a net scrap importer but primarily of secondary grades. Thus, through its purchase of Zimmer, SDI plans to import industrial scrap grade to the Texas mill and use railcars to assist with transporting finished goods south of the US border. With the growing steel industry in Northern Mexico, lower domestic access to the higher grades may place pressure on secondary scrap grades. Although, some speculate Zimmer may also use the railcars for exported scrap material into Mexico when prices are feasible. 


Relatedly, and more relevant to Northern US, Canadian steelmaker Stelco recently commissioned a new pig iron caster at its Lake Erie, Ontario facility, which is capable of producing 1mn mt of pig iron per year. 


The company noted that the supply of ferrous scrap has been under pressure with the rise of electric-arc furnace (EAF) steel production, making pig iron an important alternative. The company plans on capitalizing on this trend as North America moves toward EAF steel.


Growing potential for HBI 

There is a relatively small market for HBI with few players worldwide. Active HBI exporters are in Russia, Iran, and Venezuela, but the quality of their material varies. 


Prices are also not easily comparable across providers as some have regional risks and lower qualities that are reflected in discounted prices. Also, availability and reliability of supply is an issue for several sources, mainly among politically unstable regions. However, companies like voestalpine and Cliffs have made the benchmark material provided by them a key point of differentiation, along with a preference to deal directly with the end-consumer. These companies also favor long-term arrangements as opposed to dependence on spot market transactions. 


The price factors

China’s reopening of the scrap market via imports may lead to a price floor considering the huge amounts of scrap the country consumes. Due to its move toward value-added steel products and higher-end flat selections, Chinese steel mills could face a scarcity for prime grades, which will increase the usage of substitutes in its mix. Active raw material demand from China is expected to support global prices of both scrap and scrap alternatives in steelmaking. 


Several current publications of HBI are not considered to be in line with prices in use. The grade tends to transact within $10/gt of prime grades, but several factors can cause variations, such as market situations, political risks, timing, and quality issues (chemical and physical properties). These comparisons will translate into higher or lower prices with no specific rule. Often, domestic offers will entail a 5-10pc discount against pig iron, which also factors into any pricing mechanism.


When looking at metallics imports for comparison, the gap between pig iron and HBI in the past six months is larger, estimated near $120/mt with HBI averaging at a 30pc discount to pig iron prices. However, HBI import pricing is generally a market assessment and rarely imported into the US. Also, pig iron imports recently peaked to high levels on China purchasing large quantities of the material.


The following chart depicts possible price differences between imported pig iron and HBI, reflecting the latest prices for basic pig iron on a cfr Nola basis along with an assessment of prospective HBI import values. HBI imports may become an even less attractive option as domestic supply ramps up. However, the numbers reflect a scenario that factors in actual import offer prices, consumer interest, and market interpretation on price as it relates to similar grades. 


Weekly Davis Index import prices in mt cfr (HBI assessed)
Weekly Davis Index import prices in mt cfr (HBI assessed)


The import price evaluation for the grade factors in import prices from Venezuela along with US domestic HBI levels that have been priced at approximately $10/gt above prime grades, with variance based on market dynamics, at HBI production origin sites in Texas or Ohio.


It is possible HBI will continue to trend close to prime grades and possibly more closely to pig iron, as prime demand eases with the increase of alternative supply. 



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