Dow Jones reported that Brazil's producers of pig iron, a raw material for steelmaking, are suffering their worst ever crisis because high iron ore and forestry costs make their product internationally uncompetitive.

Mr Paulino Cicero de Vasconcelos president of Minas Gerais state producers' association Sindifer said that Brazil's pig iron production won't exceed 4.5 million tonnes in 2010, similar to 2009's 4.4 million tons when demand slumped due to the global economic crisis.

He added that current output represents less than a third of Brazil's annual pig iron production capacity of 14.5 million tonnes. Most of the country's 154 iron furnaces are at a standstill as this year's rise in iron ore prices has made production not viable.

Mr Vasconcelos said that "Brazil won't export any pig iron this year as cost factors have made it impossible for local producers to compete internationally with material from Russia and Ukraine."

In 2006, Brazil was one of the world's three biggest exporters, with exports of about 5 million tonnes on a total output of 9.6 million tonnes. Following an iron ore price increase of 100% in the first half of 2010, and a further 35% hike this quarter, pig iron producers have to pay USD 130 a tonne for their iron ore. About 1.6 tonnes of iron ore are needed to produce each tonne of pig iron.

Mr Vasconcelos said that on top of this are the costs of forestry schemes which Brazilian law now requires producers to have to produce the charcoal used in the furnaces. These costs, together with the impact of the strong Brazilian real, make exports unviable at current market prices of about USD 465 a tonne.

(Sourced from www.dowjones.com)