Russian EAF steel mill growth puts spotlight on metallics
Wednesday, 22 February 2012 | 00:00
Russian electric arc furnace-based steelmaking - expanding at a slower rate than earlier planned -- is still likely to require millions of additional tons of ferrous scrap in the coming years, contributing to pushing up scrap prices further this year, according to analyst and producers.
The EAF sector is expected to account for more than 40% of total Russian steel capacity by 2014, with much of the growth in new regions, putting raw materials supplies high on the agenda, they say.
Of the 17 new mini-mill projects currently in progress -- or at least not canceled -- a combined crude steel capacity of over 11.5 million mt is set to come online by 2015, some 60% lower than the 30 million mt in new capacity first envisaged.
Domestic scrap prices in Russia rose by 23-27% in 2011 to average at Rb 10,300/mt ($346) FCA, after a 50% price increase in 2010.
This year, mills think that prices may hover higher at Rb 11,000-12,000/mt.
Leading steel pipe producer TMK's view is that 2010-2011 saw the full post-recession recovery of the Russian scrap market, both in trade volumes and prices.
National scrap consumption will gradually and steadily increase throughout 2012-2013 with occasional shortages and associated steeper price corrections -- already expected in March and April -- a source at the company, which produces its own billet, said.
Major Russian integrated producer Magnitogorsk Iron & Steel Works (MMK) believes that scrap prices in Russia will continue increasing this year, but weakening demand for steel and little movement in steel prices will prevent high price volatility.
The steelmaker believes benchmark export prices will average at $420-480/mt CFR Turkey and possibly restrain domestic prices from exceeding $400/mt. Competition with foreign scrap buyers is receding as Russia's export volumes gradually decrease, a source at the company said.
Kirill Zhilyaev, chief analyst at Evraz, suggested that Russia will experience scarcer scrap collection from later this decade.
"Scrap we get today originated as steel products in the 1980s. Russia's still abundant scrap collection is the result of steel and machine production being in full swing in the Soviet heyday," he commented. "But as we know, the early 1990s, especially 1992-1993, marked a slump in steel consumption which is bound to be reflected in scrap collection some 20 years later."
Last year, Russia produced slightly above 20 million mt via EAFs, up 6% year-on-year, and accounting for slightly less than a third of the overall steel production, exceeding the 1% annual growth rate for blast furnace and open hearth furnace-based mills.
Taking into account projects that are approaching completion and are most likely to come on stream before 2014, Russia's EAF capacity will grow by almost a fifth, or 5.5 million mt, by 2014.
Scrap bought by EAF-equipped mills last year totaled 17.7 million mt, 7% more than in 2010, SBB calculates based on research of the steel works over 100,000 mt/year capacity that total 18 producers. This is three quarters of the estimated 23.5 million mt collected in Russia in 2011.
Many integrated steel producers may reduce their dependence on scrap by increasing the use of pig iron in their EAFs.
Steelmakers equipped with both EAFs and basic oxygen furnaces, can switch between steelmaking routes to minimize production costs but can, if necessary, ramp-up the pig iron content of the EAF charge to cur the scrap intake, said Oleg Maslennikov, marketing director at SteelWay Co, a scrap market monitoring company.
Demand for special and high quality steels, and as impurities in scrap are rising, will mean EAF-based alloy steel producers will increasingly look for scrap alternatives.
Russia's biggest pig iron producer KOKS Group, operator of the Tulachermet works, says that in 2010-2011 it saw growing domestic demand for pig iron, largely coming from pipe mills with in-house melting operations and other EAF mills.
"We expect this to continue into 2012 and beyond, on declining availability of fine scrap and rapidly developing demand for steels with high level purity and precise chemical composition," according to company spokesman Sergey Frolov.