Atlantic iron ore pellet: Premiums aligned to benchmark, higher 2019 seen

08-Oct-2018

Atlantic Basin iron ore blast furnace pellet premiums for cargoes in October remained steady Monday, with growing expectations of increases in premiums charged for 2019 and any additional spot tons procured beforehand. A $73/dry mt premium was heard agreed by a CIS pellet producer, based on fourth-quarter volumes into specific quarterly pricing contracts. This was not considered more broadly reflective of the wider market, where earlier headline premiums were being extended at “benchmark levels of $58/dry mt,” a buyer said.

Business for small volumes under contract was described as less significant with wider Brazilian, Canadian and Swedish pellet trade.

S&P Global Platts Monday assessed estimated Atlantic monthly contract blast furnace pellet premiums at $58/dmt for October, steady from September.

Pricing normalized to 65% Fe pellets rose 7.39 cents/dry mt unit to $1.6604/dmtu in October.

Sources familiar with the region related to $73/dmt sales were not immediately able to confirm such business, with one starting the underlying premium for regional acid pellets was $56/dmt and there was no change.

Chinese import spot pellet premiums recently in the high $80s/dmt, may have led to a Q4 contract premium in the middle of the $56-$90/dmt range, a CIS source said.

A buyer believed premiums were moving higher or 2019, but had yet to see any increase imposed on delivered in Q4. Earlier Q3 spot demand was not yet confirmed for Q4, although Indian pellets may be available for desperate users paying higher levels than top tier high CCS and lower impurity material under contract.

Platts Atlantic blast furnace pellet assessment reflects the premium charged for top tier contract 65% Fe pellet with lower silica than the China spot import grade, specified at 3%.

Alumina is at 0.5%, while CCS is higher at 275 and low temperature disintegration over 6.3 mm, at 80%; sizing over 9 mm greater than 94%; and sizing below 6.3 mm smaller than 2.5%.

Platts assessed pellet price takes into account Platts IODEX 62% Fe iron ore fines prices on a monthly average netback to Brazil for the previous month as its pricing basis. It uses Platts spot Capesize freight rates between Brazil and China for the same assessment.

The pellet price is adjusted for quality to 65% Fe by adding to IODEX a multiple of the 1% Fe differential monthly average, also for the previous month.

Platts 1% Fe differential between 60%-63.5% Fe grades rose to $1.343/dmt in September, from $1.338/dmt in August.

Pricing for 65% Fe fines over IODEX saw the differential remain high in September, at $27.225/dmt, from August’s $27.031/dmt.

DR PREMIUMS

Direct-reduction grade premiums continue to find support on demand from direct reduced iron plants in the Middle East and North Africa, with Egypt and Algeria in need of supplies.

Platts on Monday assessed October direct reduction iron ore pellet premium at $62.50/dmt, stable from September, based on 67.5% Fe grade, with the premium applied to a 65% Fe base.

The spread between 62% Fe IODEX and 65% Fe fines remains wide.

This was said to be a key factor in discussions for 2019 DR pellet pricing, where moving the basis of pellet pricing to 65% Fe, and taking this outright spread into account for new contract premiums may be considered, a buyer said.

Over 2017, the spread between 62% Fe IODEX and 65% Fe fines was around $16/dmt, while over January to September 2018, the spread has averaged at just over $21/dmt.

Negotiations for 2019 premiums in contracts for DR-grade may be still early to see concrete talks, source said.

Preliminary information may be received and exchanged for now, and a move to discuss pricing may not occur until November.

To aid planning and budgeting, current underlying changes in BF pellet premiums in the spot market, and how this may be applied in DR premiums, were being considered.

Pellet premiums were shaping expectations for margins with steel prices after a year of healthy margins for DRI-based steel plants.

Tight DR pellet supply is leading to lump ore usage at one major DRI producer, with premiums for lump ore also considered low enough to justify use.

Source: S&P GLOBAL PLATTS