Direct reduction, blast furnace iron ore pellet contract premiums may converge

20 November 2017

Iron ore contract pellet premiums are moving toward settlement for 2018, with the outcome likely to lead to smaller differences between direct reduction grade pellets and blast furnace pellets, sources said.

There was widespread talk this week of settlement in DR grade premiums offered by a large supplier in the Persian Gulf, which was yet to be confirmed.

The price was at a higher differential to current China BF premiums, sources said.

An industry source expressed surprise that DR premiums would settle ahead of BF pellets, which account for a larger proportion of the pellet market.

The potential for a one-off deal may be there, while spot China BF premiums are said to be used in annual term offers.

For lower-priced and more widely available BF grade, a settlement may be occurring in Northeast Asia. The typical $8-$10/dry mt gap between the two segments in annual terms may have more than halved, sources said.

S&P Global Platts for November assessed estimated Atlantic monthly contract blast furnace pellet premiums at $45.50/dmt for 65% Fe pellets.

DR pellet premiums were assessed at $56/dmt, based on 67.5% Fe grade with the premium applied to a 65% Fe base.

Spot pellet sales for the fourth quarter were earlier heard at premiums linked to earlier deals or with some additional amount, perhaps more in line with the Chinese import pellet market.

Platts assessed China spot blast furnace pellet premium at a record $59.50/dmt CFR North China on November 8.

The Platts China spot pellet premium averaged $51.38/dmt in October, up from $15.69/dmt in April.

The assessed pellet premium is based on pellet with typical specifications of 65% iron, 0.35% alumina, 5% silica, 0.02% phosphorus and 0.003% sulfur, 250 cold crushing strength and a maximum sizing of 2.5% under 5 mm.

International pellet contract markets reference higher strength pellets, with lower silica, and lower impurities, with iron content usually far higher than 65% Fe for DR grade.

A marketer said in late October that pellet pricing negotiation terms have changed, owing to China’s BF pellet premium surge.

It was no longer evaluating a premium for DR against BF, it was pitching premiums for both segments with levels available in China’s spot pellet market, and factoring in that China’s pellet index reflected higher-impurity product, with imports mainly from India.

DR-grade pellet scarcity since the Samarco operation was idled in late 2015 had led to greater usage of BF pellets at DRI plants.

There is no certainty on a resumption timescale at Samarco currently, while producers are talking up the potential Samarco won’t operate at all next year.

Source: Platts