Proposal to launch DR-grade iron ore pellet premium weekly indicator

Fastmarkets is proposing to launch a weekly indicator for direct-reduced (DR) iron pellet premiums, to be known as the iron ore DR-grade pellet premium indicator, $ per tonne.

This assessment is intended to provide an indication of the theoretical price and market sentiment in the DR-grade pellet market. This market operates primarily via long-term contracts, with premiums settled on a quarterly basis. There is, however, appetite among market participants for information about theoretical prices during each quarter, which this assessment is designed to provide.

DR-grade pellet premiums are quoted over the index for MB-IRO-0009 iron ore 65% Fe Brazil-origin fines, cfr Qingdao.

Direct reduced iron (DRI) is expected to play a key role in the steel industry’s push for decarbonization, with the construction of several new units having been announced globally.

Demand for DR-grade pellet is expected to expand beyond the current production hub in the Middle East, and there are concerns that this growing demand could outstrip supply.

Considering the expected increase in DRI capacities globally, demand for merchant DR-grade pellets could increase to 58.5 million tonnes in 2026, from 46.98 million tonnes in 2022, according to recent estimates by the International Iron Metallics Association (IIMA).

In 2032, demand is expected to grow to 81.2 million tonnes.

The DR-grade pellet indicator will therefore provide valuable insight for market participants.

The specifications of the proposed new assessment are as follows:

Iron ore DR-grade pellet premium indicator, $ per tonne
Quality: 94% of pellets <9.0mm; Fe content, base 67.5%; silica, base 1.5%; alumina, base 0.5%
Quantity: Minimum 10,000 tonnes
Location: All origins, all destinations
Unit: USD per dry metric tonne
Payment terms: Payment on sight, other terms normalized to base
Publication: Wednesdays, 4pm UK time.

The proposed indicator will be launched alongside the existing assessment of the iron ore DR-grade pellet premium to 65% Fe fines index, Middle East reference, which reflects the quarterly contract price.

Fastmarkets proposes to change the publication frequency of the existing assessment from monthly to quarterly, and to clarify the price name to indicate that it reflects the quarterly contract price. The premium is unaffected by location so the specific Middle East location would be removed.

The proposed new name and specifications are as follows:

MB-IRO-0077 Iron ore DR-grade pellet premium, quarterly contract, $ per tonne
Quality: 94% of pellets <9.0mm; Fe content, base 67.5%; silica, base 1.5%; alumina, base 0.5%
Quantity: Minimum 10,000 tonnes
Location: All origins, all destinations
Unit: USD per dry metric tonne
Payment terms: Payment on sight, other terms normalized to base
Publication: Quarterly, usually the last working day.

The consultation period for the proposed launch and for the change to the assessment will start on October 26 and will end on November 28. The launch will take place, subject to market feedback, on November 30, with the changes to the contract prices taking effect from the same time.

To provide feedback on these prices, or if you would like to provide price information by becoming a data submitter to these prices, please contact Marina Shulga by email at pricing@fastmarkets.com. Please add the subject heading ‘FAO: Marina Shulga, re: DR-grade pellet premium.’

To see all Fastmarkets’ pricing methodology and specification documents, go to: https://www.fastmarkets.com/about-us/methodology.

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