With the narrowing steel margins, Iron Ore prices slip
The Asian seaborne iron ore market edged down Friday on narrower steel margins, and as end-users turned to cheaper substitutes. The 62% Fe Iron Ore Index was assessed at USD 109.40/DMT CFR North China Friday, down 80 cents/DMT from Thursday. The front-month July TSI swap was down USD1.10/DMT from Thursday at USD105.10/DMT.
Spot steel prices dropped Friday and two sources said steel margins may have turned negative with iron ore prices rallying this week. “Bids from steelmakers have some distance from sellers’ expectation. They have showed unwillingness to buy iron ore higher,” a Chinese trader said. Increasing prices have forced end-users to source for cheaper alternatives, and stronger demand was observed for low grade Indian fines.
“End-users who have a fixed price cost limit have to use products with higher impurities than Jimblebar Blend fines and Super Special fines. Indian fines with above 4% alumina are facing stronger demand as they can be utilized in small volumes to lower overall production costs,” an international trader said.
A Shandong-based steelmaker agreed it had increased usage of Indian fines recently, Iron ore slips on narrowing steel margins and is also interested in SP10 fines. As the floating price went up very quickly this week, traders said seaborne cargoes have become too expensive compared to port stocks.
"We don't dare to take seaborne shipments at this level, although premium is likely to get supported by tight supply," a Shanghai-based trader said. Dockside iron ore inventory dropped by 3.6 million MT on week, and less available mainstream fines supported offers at Chinese ports.
"There are still many traders buying at ports today, anticipating price will continue to go up," a Shanghai-based trader said. Spreads between Australian fines and Brazilian medium grade fines narrowed slightly, and an eastern China steelmaker said less environmental control offered them bigger tolerance to impurities.
Lump premium was stable on day, and a procurement source said that pellet prices will cap the fixed price of lump. "We have used more pellet since May to replace lump in blast furnaces," a procurement source said. Another trader said that iron content of Newman blend lump went down recently, and he worried that it will impact lump premiums in the near future.
Platts assessed the spot lump premium at 33 cents/DMT unit, flat on day. Prices of domestic concentrates edged up on week, as suppliers were yet to adjust offers much. "Normally, imported fines prices change first, and it takes time for domestic miners to follow," a procurement source from Hebei said.
Demand for domestic ores was still strong, and a private steelmaker said it used more domestic ores to produce pellet. "It is much more cost-effective than lumps," the source said. Platts assessed the 66% Fe domestic concentrate at Yuan 880/DMT delivered to mills in Tangshan Friday, up Yuan 5/DMT on week.
Australia's BHP has announced price discounts for its term contracts of 60.3% Fe Jimblebar Blend fines at 0.5%, and flat for 61% Fe Mining Area C and for 57% Fe Yandi fines, for shipments loading in the third quarter of 2019, contract customers of the miner said Friday. When contacted, a BHP spokeswoman declined to comment on the matter.
In Q2, BHP's discount for Jimblebar blend fines stood at 6%, discount for MAC fines stood at 3%, while discounts for Yandi fines were 3%. Market sources said the latest discounts were reasonable and in line with expectations. "Since the spot cargoes for those three products are traded at a premium, the term contract price is actually lower than the spot price," an eastern China-based steel mill source said.
Yandi fines with low alumina and high silica content is popular at ports amid lesser availability of Brazilian fines. BHP sold an 80,000-MT cargo of 57% Fe Yandi fines at a premium of USD3.75/DMT over 62% Fe index Thursday, loading July 21-30. "But there are not many term cargoes include Yandi fines," another steel-maker source said. Some market participants were worried about the discount offered for Jimblebar Blend fines, as they said it was narrowed too much from Q2 and expected the quality to be worse than before.
"Although JMBF was traded at a 45-cents premium Thursday, it is hard to say if prices could maintain when supply tightness relieves in the future," a Beijing based trader said. Due to less supply of Pilbara Blend fines and Newman fines, mills have to increase usage of JMBF and MAC fines as substitutes. "Increasing supply of JMBF would be a trend for the rest of the year," a Singapore based trader said.
Report By: Mehrdad Najafi
