Demand in DR pellet market improves on lower premium

Demand in the direct-reduced (DR) iron ore pellet market has improved, partly due to a lower premium in the second quarter, sources told Fastmarkets

Fastmarkets’ assessment of the iron ore DR-grade pellet premium, quarterly contract was $45 per tonne on Monday, down from $52 per tonne on January 4.

Fastmarkets’ calculation of the index for iron ore, 65% Fe Brazil-origin fines, cfr Qingdao, which has been used as the basis for DR pellet premium contracts since 2019, averaged at $140.33 per tonne in the first quarter of 2023, up from an average of $111.39 per tonne in the fourth quarter 2022.

In late February, Vale – the world’s largest supplier of iron ore pellets and a key price benchmark setter in the global market – reduced its DR pellet premium by $7 per tonne, to $45 per tonne for shipments in the second quarter. That was the third consecutive drop in Vale’s quarterly pellet premiums amid softer global demand.

“The market is strong, with good demand for pellets, and the current premium is suiting everyone,” one buyer said, adding that when the premium for the second quarter was agreed – in mid-February – there was no indication that demand would improve.

“We are now witnessing an improvement in the DR pellet market and, definitely, a reduced premium is one of the factors,” one supplier said, adding that “DR pellet demand has improved in all the Middle East and in the North African region. Egypt, however, is still affected by hard currency issues, but demand [for pellet] is there.”

“Seeing some steel price increases in Egypt and UAE – even more in the US – I would think the DR pellet supply would move toward tightness,” a second supplier said.

Despite demand improvement, the premium will not be revised, several sources on both the buyer and supplier side told Fastmarkets.

Although, “quality discounts for lower quality producers could narrow given the already low levels of DR premium for the second quarter,” the second supplier said.

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