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Steel mills restarting 34% of blast furnace capacity idled in COVID-19 curbs: UBS

Highlights

Blast furnaces restarting on demand and for operational reasons

72 blast furnaces said idled worldwide amid COVID-19 crisis

London — Around 22 blast furnaces are currently being restarted by steelmakers around the world, as steel demand picks up and also for operational reasons, analysts from UBS said in a Sept. 8 report.

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The restarts represent around 34% of the total blast furnace capacity that was hot-idled or temporarily halted due to COVID-19, and the rest can be expected to restart by year-end, according to the report.

"This is not a surprise, given the time-constraints of hot idling and as demand is picking up," said analysts led by Myles Allsop. "We expect most idled BFs to restart by end-20; this is needed for pig iron production ex-China to be flat h/h in 2H."

A total of 72 blast furnaces around the world with capacity of 132 million mt of crude steel were hot-idled or banked in 2020 as a result of COVID-19-related factors, said UBS, citing research from CRU.

According to the research from both UBS and CRU, the idled BFs were located 31 in Europe of which 8 have now restarted; 26 in North America of which 6 have restarted; 13 in Latin America of which 4 have restarted; 46 in Asia of which 16 have restarted, and 15 in the rest of the world of which 6 have restarted.

Some steelmakers are restarting furnaces in response to demand, which has partially recovered from April lows, but remains down around 30% year-to-July, according to UBS. However, others are reopening their furnaces because otherwise these will cool and may get blocked and inoperable, the analysts said.

"Typically the minimum length a BF is banked is around three months due to economics and the maximum is around six months (after which it is hard to sustain the heat)," they said.

Companies that have curtailed blast furnace output this year include ArcelorMittal, voestalpine, Thyssenkrupp, Vallourec, Salzgitter, US Steel, SSAB, Ferreira di Servola, Isdemir, Liberty, AK Steel, Nucor, Stelco, Usiminas, Gerdau and CSN, UBS reported.

Impact on iron ore

Prices for iron ore, a key ingredient for blast furnace steelmaking, are likely to fall over the next six months on greater Brazilian supplies and inventories, despite expectations of greater demand from steelmakers bringing BFs back on stream, according to UBS.

The analysts expect prices for 62% Fe iron ore fines delivered to China to fall back to $85/mt in 2021, after touching a six-year high of $130/mt last week, "with Brazilian supply recovering faster than global steel production," they said.

"Iron ore inventory at Chinese ports rose 2 million mt w/w after having been stable for the previous five weeks; they are now at highest level since Apr-20," UBS said. "Inventory on vessels outside the key iron ore ports in N China are down 1 million mt w/w but remain high at 17 million mt (average since Jan-18 is around 6 million mt) due to port congestion following changes to customs protocols and poor weather."

Scrap tightness

In a separate research note, analysts from Macquarie Bank said that scrap flows, including for steelmaking, have collapsed post-lockdown. Ferrous scrap is typically used in electric arc furnaces rather than blast furnace steelmaking.

"As global economic activity recovers post-lockdown, markets become increasingly aware that scrap supply options are no longer adequate to meet recovering demand, requiring a lift in the buying rate of primary supply," said Macquarie analysts led by Tom Price.

"Virus controls severely limited the scrap collection process," they said, noting that copper and zinc refining have a relatively low dependency on scrap flows (less than 20%) while aluminum, lead, nickel and steel markets are heavily scrap dependent, which has resulted in a rising price trend.

S&P Global Platts assessed Turkish imports of premium heavy melting ferrous scrap 1/2 (80:20) at $302/mt CFR on Sept. 8, up $2/mt on day, to match the previous 2020 high of $302/mt CFR reached on Jan. 7.