Brazilian DR iron ore pellet premiums expected to slip in Q2, in line with softer buying interest

Premiums for direct-reduced (DR) iron ore pellet from Brazil are expected to move lower in the second quarter of the year in response to weaker demand from major importers amid increasing inventory, sources told Fastmarkets

Second-quarter DR pellet premiums were heard to be discussed at $53 per tonne, down by $2 per tonne from the current quarter, while blast furnace (BF) pellet premiums have remained flat at $45 per tonne from the first quarter.

Both pellet premiums are based on Fastmarkets’ 65% Fe Brazil-origin iron ore fines CFR Qingdao index.

Fastmarkets calculated its iron ore 65% Fe Brazil-origin fines, cfr Qingdao at $129.60 per tonne on Thursday February 29, down by $15.38 per tonne from $144.98 per tonne on February 16, when the down trend started.

“Sentiment wise, it seems the market does not have that appetite, from what I’ve heard, although suppliers could be keeping the premium high as they expect the iron ore index to drop further,” one buyer said.

Fastmarkets’ iron ore DR-grade pellet premium indicator was calculated at $55 per tonne on Wednesday February 28, stable week on week.

Weaker import interest for DR pellet weighs on premiums

Some market participants noted a dip in demand for DR pellet in the first quarter, in line with weaker steel prices.

A steelmaker source based in the Middle East told Fastmarkets that softer steel prices since the start of the year have forced steel mills to scale back on production and this capped raw material consumption over the previous months.

The source added that most mills in the Middle East and North Africa (MENA) region have sufficient inventory and are not in any pressure to procure additional cargoes.

Minimal impact of LKAB derailment on regional DR pellet premiums

“While pellet supplies from Luossavaara-Kiirunavaara Aktiebolag (LKAB) are expected to remain disrupted in the coming months due to the series of train derailments, we are not expecting any sharp surges in DR pellet premiums in the coming months,” a second steelmaker source from the Middle East said.

One supplier said that “the demand of Brazil- and Canada-origin material is higher now; LKAB absence of supply is the main issue in the Middle East and North Africa region now, plus the Red Sea disruptions in vessel voyages, too, could see some impact on iron ore procurement.”

LKAB pellet constitutes 15% of DR pellet demand in the Middle East, according to a third source based in the Middle East.

Swedish iron ore miner LKAB announced a second train derailment at its Vassijaure station on Saturday February 24.

This comes following a previous train derailment on December 17 in the northern section of Malmbanan, which resulted in 2-month suspension in delivery operations.

“Demand seems to be the strong determinant on premiums in the DR pellet market in the recent months,” a trader in Singapore told Fastmarkets. “This is likely due to the expectation of strong DR pellet inventory levels in Oman.”

BF pellet premiums supported by tighter supply in EU market

The disruption in transport operations for LKAB is expected to have a stronger impact on BF pellet prices, according to a fourth source based in the Middle East.

The source added that the there is a stronger reliance on LKAB’s BF pellet cargoes across buyers in Europe compared to DR pellets.

“The displaced demand for BF pellet is expected to be redirected toward other pellet suppliers in the region and that is expected to keep BF pellet premiums supported in the short-term,” a second trader based in Europe said. “Pellet suppliers have been experiencing stronger buying interest for BF pellet cargoes since the first train derailment to meet their consumption needs.”

“We were expecting an across-the-board slide in DR and BF pellet premiums in the second quarter in line with weaker downstream prices across major markets,” the third steelmaker source in the Middle East said. “For BF pellet premiums to hold steady in the second quarter could be an indication of a tighter overall BF availability alongside a steady level of demand from importers.”

A third trader in Europe told Fastmarkets that the impact of tighter BF pellet supplies on prices could be blunted by an anticipated dip in consumption levels in the coming quarter.

The trader added that several BFs are expected to be undergoing scheduled maintenance in the second quarter quarter, which could result in weaker pellet demand from BF operators.

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