Iron ore concentrate premiums poised for rebound despite narrowing spread with sinter-pellet feed

Market participants are cautiously optimistic about a rebound in iron ore concentrate premiums, with steelmakers around the world set to ramp-up production in line with an anticipated increase in demand for steel products, Fastmarkets understands

Steelmaking margins in various markets were under the pressure for most of 2022, mainly due to the reduction in steel consumption resulting from the decline in construction and manufacturing activity due to Covid-19 restrictions and surging energy prices.

“There was a general pivot towards cost-efficient, lower-grade sinter fines in the Chinese market — particularly in the second half of the year,” a Shanghai-based analyst told Fastmarkets.

“Demand for high-grade concentrate and pellet cargoes softened steadily alongside this shift,” the analyst added.

Optimism over the Chinese government’s push for economic revitalization since dropping its “Zero-Covid” strategy has fueled expectations of stronger steel demand in China and various regional markets in 2023.

“Mills are waiting for the right time to ramp-up hot metal production ahead of an anticipated surge in construction and manufacturing-led demand,” a Shandong-based mill source told Fastmarkets.

Portside demand for high-grade sinter fines such as Iron Ore Carajas (IOCJ) fines from Brazil has steadily increased since mid-December, reflecting a possible shift in the buying patterns of domestic Chinese steelmakers, according to a Singapore-based trader.

The trader said that the slowdown in production of domestic concentrates, alongside tighter first-quarter shipments from Brazil, has given rise to increased interest in iron ore concentrates cargoes.

Fastmarkets’ iron ore 66% concentrate CFR Qingdao index averaged at $137.72 per tonne in January 2023, $14.09 (or 11.22%) higher than the previous month.

A Xiamen-based trader told Fastmarkets that offers for Australian sinter-feed concentrate brands have been heard at a premium of around $3 per tonne against March 65% Fe fines floating prices.

“The slowdown in domestic production of low-alumina sinter-feed concentrate and an anticipated rebound in demand for higher-grade iron ore has led to an uptick in import appetites for some sinter-feed concentrate cargoes,” a trader based in Hong Kong told Fastmarkets.

“These sinter-feed cargoes are expected to be suitable alternatives when there are fewer shipments from Brazil in the first quarter,” the trader added.

Pellet feed lags sinter feed

But the rebound in seaborne concentrate premiums is expected to be very uneven, with demand for seaborne pellet feed expected to lag behind sinter feed due to an increasingly uncertain domestic Chinese pellet market.

“The market for domestic pellet production has been exceptionally poor this year, which has affected the ability and interest of pellet producers to procure seaborne pellet-feed concentrates,” a second Singapore-based trader told Fastmarkets.

The pivot towards low-grade sinter feed driven by slim steelmaking margins in China has also weighed on domestic pellet demand.

Production margins for domestic pellet producers have narrowed by extension, crimped by poor pelletizing margins.

“Looser sintering restrictions in the final quarter of 2022, alongside poor steelmaking margins, have eroded the price support for pellet products in [China’s] domestic market as well as the seaborne market,” a third Singapore-based trader said.

A mill source based in northeast China told Fastmarkets that the traded premiums for high-grade pellet feed cargoes were around $5 per tonne against 65% Fe indices for January-loading cargoes, which was around $4 dollars lower than previous trades for similar material with a loading period in the fourth quarter of 2022.

With the influx of cost-efficient alternatives, such as lower-grade Indian pellet, alongside abundant supplies of iron ore lump, domestic pellet prices are expected to have a limited upside in the first half of 2023, according to a Ningbo-based trader.

Pellet feed premium

At the end of a month-long consultation, Fastmarkets is pleased to announce the launch of the Iron ore 67.5% pellet feed premium, CFR Qingdao index together with the Iron ore 67.5% Fe pellet feed, CFR Qingdao index on February 1 2023. The newly launched indices will be published on a daily basis at 6.30pm Singapore time.

Join us in Stockholm for Fastmarkets’ International Iron Ore 2023 on May 4-5, to explore the latest trends, challenges, and innovations to hit the international iron ore market. Learn more.

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