25/03/2015 – Spot iron ore lump premium slides to $0.12/dmtu as demand crumbles

Spot iron ore lump premiums continued to tumble Wednesday as there was no sign of a recovery in demand among Chinese buyers.

Platts assessed the weekly spot lump premium at $0.12/dry mt unit, down $0.025/dmtu from the previous week. The premium is normalized to a CFR basis and expressed over the IODEX fines assessment.

“Lump demand is pretty poor now and mills would rather buy full Capesize vessels of fines material like Pilbara Blend fines,” a Shanghai-based trader said. “It’s really the climate situation that is turning warmer in China now and some domestic concentrate production is coming back. This is definitely threatening appetite for imported lump.”

Lump and pellet cargoes are mutual substitutes, with the latter processed through pelletization from concentrate material.

A Hong Kong-based trader said, however, that even though domestic concentrate output levels were rising, they were “at lower levels” when compared to the same period in previous years.

This was because seaborne iron ore prices were extremely low, making it uncompetitive for domestic miners in China to raise or maintain production because end-users already had a cheap alternative in imported ore.

A Hunan-based steelmaker added that lump was “pretty well supplied” currently so mills were in no hurry to buy material.

“We’ll wait for lump premiums to fall further, and I’m very certain it will because there is so much supply this month,” the steelmaker said, adding that there were a lot more Iranian lump shipments entering China over March, which only contributed to the supply glut.

A steelmaker in eastern China added that there was a lot of lump material sitting at domestic ports that could just not be moved as buyers were few and far between.

A source at an international trading house agreed. “We have 400,000 mt of Pilbara Blend lump and Newman Blend lump and we have had zero inquiries for the past one week.”

International trading house Cargill offered through Platts a prompt delivery cargo with a lump premium of $0.13/dmtu to Platts 62% Fe IODEX average for the quotation period of April 1-30, minus C5 freight (FOB basis), 100,000 mt, loading April 12-21.

This offer was normalized approximately to $0.1267/dmtu CFR Qingdao.

The final lump price is to be on CFR Qingdao basis, derived by the sum of PB Lump FOB dmtu price multiplied by actual Fe content and C5 wet freight multiplied by B/L weight.

Any additional freight costs and adjustments for discharge ports in China other than Qingdao would be determined by the seller.

The offer was valid until 5:30 pm Singapore Time (0930 GMT). Australian miner Rio Tinto Tuesday offered 100,000 mt of 61%-Fe Pilbara Blend fines through a fixed price spot tender.

The PB fines cargo was co-loaded with 70,000 mt of 62%-Fe Pilbara Blend lump.

Both cargoes will load April 8-17, but the miner failed to find a home for the combined shipment.

Sources said Rio Tinto had already offered this combined PB fines and lump shipment twice before through spot tenders issued March 19 and 20, but had not awarded both tenders.

They added that it was likely due to the fact that lump material was included in this combined shipment that was making selling it off challenging.

Source – Platts.com