High-grade iron ore premiums dip further despite increased consumption

Key drivers

Indicative buying ideas for iron ore concentrates continued to soften in line with reduced offers extended in the market amid poor import demand, according to a trader source based in Singapore.

The trader added that ample supply of Australia-based concentrates against weak buying interest has continued to weigh on market offers.

“Domestic consumption for high-grade materials seems to have improved compared to the previous week in line with a firmer demand for steelmaking raw materials across the board. This is likely due to the resumption of steel production by some mills in China which were previously undergoing maintenance works,” a Shandong-based trader source said.

Port inventory levels for iron ore concentrate bucked an upward trend since late July, dropping to around 8.9 million tonnes, according to a local information provider.

Seaborne pellet premiums similarly trended lower in the week to August 26 despite increased domestic consumption.

A second Singapore-based trader said that pellet usage was noted to have picked up compared to the previous weeks with mills increasing pellet usage in their blast furnace blend ratios over the usage of lumps.

“The increase in cost of coke supplies has resulted in higher production costs in using lumps within blast furnaces vis a vis the use of iron ore pellets. This is likely why pellet consumption across mills bucked a previous downward trend,” a Hong Kong based trader source said.

“Nonetheless, pellet consumption remains low and it remains unclear if this trend is sustainable. When coking costs start to be reduced or when mill margins start to come under threat, it is likely that pellet consumption will be affected once again,” the trader added.

A mill source based in southern China said that the increase pellet consumption was being met with ample domestic supplies. Portside sales have not improved significantly in line with increased demand. Thus, import interest is not expected to firm up accordingly.

Pellet inventory in Chinese ports continued to increase, totaling up to 6.1 million tonnes, according to a local information provider.

Fastmarkets iron ore indices

66% Fe concentrate, cfr Qingdao: $117.82 per tonne, up $0.11 per tonne
65% Fe blast furnace pellet, cfr Qingdao: $137.40 per tonne, down $1.06 per tonne
Iron ore pellet premium over 65% Fe fines, cfr China: $21.50 per tonne, down $2.10 per tonne

Trades/offers/bids heard in the market

Concentrate
Spot market, undisclosed tonnage of 66% Fe Minas Rio concentrate offered at the September average of a 65% Fe index plus a premium of $2 per tonne, September loading

Pellets
No visible activity