A re-rollers' steel market on scrap, DRI costs

Rolling semi-finished steels into bars used for construction is the healthiest steelmaking option available right now, looking at margins.

The Middle East and Eastern Mediterranean region has, like others, succumbed to steel price pressure led by Chinese imports, with low iron ore fines prices aiding competitive billet pricing for re-rolling.

Higher relative ferrous scrap and prevailing contract levels of direct reduction (DR) pellet premiums at around $40/dry mt and up is keeping DRI producers and mini mills on the edge.

DRI plants in North America and the Caribbean have already been idled in recent months, with operators blaming high DR premiums and lower prices for metallics and a range of steel products leaving DRI in the shade.

“DRI is the highest cost of steel production right now,” said a market source in Dubai.

DRI modules situated along the Persian Gulf stretching from Hadeed’s Al Jubail down through Bahrain, Qatar, the UAE and Oman have state support, more limited optionality around feedstocks due in part to technologies, steel product and quality requirements.

Low iron ore fines prices may spell trouble ahead for the Middle East, said a regional source. He put the reduction in blast furnace feedstocks at a 60% rate against a drop of 40% for DRI producers.

Cheaper imports of rebars and semi-finished steels erode markets, along with lower availability and options using ferrous scrap keeping up reliance on DR pellets.

In an iron ore market where around 25-30% of supply in DR pellets are from Samarco, and are not expected to return in the near future, demands remain for premiums to stay at over 100% of underlying fines prices.

That is a recipe for more regional stress in steel markets.

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