First-quarter 2024 BF pellet premiums were heard to be settled at $45 per tonne, up by $5 per tonne from the previous quarter. DR pellet premiums, meanwhile posted a stronger increase by $7 to $55 per tonne.
Both pellet premiums are based on Fastmarkets’ 65% Fe Brazil-origin iron ore fines CFR Qingdao index.
The latest premiums reflect a continued widening of the DR-BF pellet premium spread from $8 in the fourth quarter of 2023 to $10 for the first quarter of 2024.
Uptick in pellet premiums against wider market expectations
Most market participants were not expecting the $5-7 increase in pellet premiums for the first quarter of 2024.
Considering high current iron ore price and reported availability of surplus supplies of DR pellet in the market, estimations of the theoretical premium level was previously heard to be between $45-46 per tonne, sources said.
Fastmarkets’ weekly iron ore DR-grade pellet premium indicator was calculated at $46-48 per tonne on Wednesday November 29, unchanged since October 4.
Tighter anticipated quarter one shipments drive pellet premium increase
A slowdown in pellet shipments from Brazil due to the country’s coming rainy season is expected to support pellet premiums, sources told Fastmarkets.
“There is a possibility that pellet feed supply will be seasonally reduced in Brazil, that will support higher premium,” a supplier source said.
The rainy season in Brazil, which usually occurs between November and March, however, has not commenced, especially in northern Brazil, according to sources from Brazil.
A Brazil-based miner source said that rain-related loading delays were minimal at Brazilian ports over most of November.
Transportation delays in the early months of 2024 is nonetheless expected to result in tighter pellet supplies in the global seaborne market, according to a seller source in the Middle East.
“While the market prices in a seasonal uptick in pellet premiums in the first half of the year due to stronger end-user demand amid the winter season in the northern hemisphere and tighter Brazil shipments, demand fundamentals in 2024 have shifted significantly in terms of weaker downstream demand in the EU alongside higher DR and BF pellet supplies,” a Singapore-based trader said.
“Overall demand for pellet looks stable, it is negative in the Saudi Arabia in particular, although that is [offset] by more or less good demand throughout the rest of the Mena region,” one buyer said.
A second pellet supplier said, “[higher] iron ore prices in general is expected to lift pellet prices, but it may not necessarily correspond with existing pellet demand,” adding that first quarter iron ore prices were still expected to plateau before correcting downward.
This view was in line with that of other sources who indicated that a stabilization in the iron ore index would necessitate a stabilization in overall pellet costs.
Fastmarkets’ iron ore 65% Fe Brazil-origin fines, CFR Qingdao index which has been used as the basis for DR pellet premium contracts since 2019 averaged at $141.76 per tonne in November 2023, $13.88 per tonne higher compared to the previous month.
This uptick in prices was in line with robust buying interest in both the Chinese seaborne and portside market, buoyed by an off-cycle increase in downstream steel prices.
Waning BF pellet demand from EU market
The weaker uptick in BF pellet premiums was thought to be a reflection of softer demand from EU-based steelmakers amid poor downstream steel prices, sources told Fastmarkets.
A second buyer source said that lukewarm BF pellet demand in the EU into 2024 is expected to restrain the growth of pellet premiums.
BF shutdowns by major steelmakers like ArcelorMittal and Liberty Steel are expected continue into the early half of 2024 amid weak steel consumption in the EU market, according to a trader based in Europe.
The trader added that lower production rates across EU steelmakers has continued to weigh on import appetite of raw materials including BF pellets and pellet feed cargoes.
“Sellers are increasingly incentivized to divert their cargoes away from the EU market towards the CFR China market in line with the recent rally in prices,” a Shanghai-based trader said. “The offers for pellet and pellet feed in the CFR China market have increased significantly in the fourth quarter, exerting downward pressure in seaborne premiums.”
