02/05/14 – Atlantic iron ore pellet premiums dropping from Q1 high

 
Iron ore blast furnace pellet premiums in the Atlantic Basin stayed largely stable but below their first-quarter high, as some contract customers indicated pricing was still relatively high with some scope for decreases.

Platts assessed monthly contract pellet premiums for May at $40/dry mt, down from $40.50/dmt for April. In March, premiums peaked at $41/dmt. However, a rebound in benchmark iron ore fines prices over the last month increased overall prices.

The Platts assessment for monthly provisional contract settlement prices rose to 213.06 cents dry mt unit FOB Tubarao normalized to 65% Fe pellets in May, up from April’s 201.02 cents dmtu.

Pellet premiums had increased for some Q1 contracts, with some buyers said to have paid as high as $45/dmt to secure material. Some Europeans relied on lifting cargoes at previously agreed lower premiums, or negotiating at or close to annual 2014 pricing of $38/dmt agreed between largest supplier Vale of Brazil and northeast Asian steel mills. From Brazil, there is a range of pellet premiums heard depending on contract length, with one producer typically agreeing a price applicable for the first half of the year.

Some of the loftier premiums discussed earlier this year for pellets from Brazil, Canada and Sweden may have only been one-off quarterly deals, and now prices have eased.

Annual premiums for non-Brazilian high quality pellets have been heard agreed contracted in a $34-38/dmt range, with shorter-term contracts possibly for Q2 and half-year calendar or fiscal year at $38-41/dmt.

Pellet premiums will be higher than normal for the next quarter or two because the market is supported, said a supply source. Last year’s $28/dmt annual price may not be easily repeated, however, due to suppliers’ rising costs and lack of investment in new seaborne export capacity outside Brazil, market sources say.

To cut costs, some pellet producers are heard seeking to make more standardized products, rather than tailor impurities, flux and other physical properties to narrow their pellet offering based on market focus.

Traditional steel mill contract buyers in Europe remain concerned about prices given strong demand, while pointing to lower spot pricing for high-grade ores in China and expected supply increases in justifying lower values.

Spot pellet premiums in China were last heard in the mid $20s/dmt. Last month, Brazil’s Samarco inaugurated its 8.25 million mt/year No. 4 P4P pellet plant, ahead of the Vale Tubarao VIII pelletizer due to open soon.

P4P’s ramp-up will occur through 2014, allowing Samarco to start 2015 at a nominal 30.5 million mt/year of total capacity through its units in Ubu, Espirito Santo state.

For 2014, Samarco expects to produce 28 million mt of pellets split evenly between blast furnace and DRI pellets, with approximately 20% destined for Europe, company executives have said. Samarco’s production in 2013 was 21 million mt and the Middle East was the biggest regional market.

 

IRON ORE FINES

The Platts assessed pellet price takes into account iron ore fines prices on a monthly average netback to Brazil for the previous month as its pricing basis. The quality is adjusted to 65% Fe by adding a multiple of the 1% Fe differential monthly average, also for the previous month.

The 1% Fe differential between 60-63.5% Fe grades dropped to $2.024/dmt in April from $2.176/dmt over March and from February’s $2.20/dmt. Values of iron units fell for ores traded around benchmark fines of 62% Fe.

Seaborne iron ore fines netback on an FOB Brazil basis rose to $92.416/dmt in April from $83.636/dmt in March as some stronger spot buying from China emerged.

However, lump ore prices in China fell further in April, indicating weakening demand for material substitutable for pellet.

Platts weekly spot lump ore assessment for imports into China was last assessed at $0.15/dmtu and for April averaged at $0.175/dmtu, compared with March’s $0.2125/dmtu.

London (Platts)–1May2014/934 am EDT/1334 GMT

 
Source – Platts.com