China's iron ore lump premium at 11-month high on better demand

China's seaborne iron ore lump premium against 62% Fe fines performed strongly so far this month and climbed to an 11-month high by Tuesday. Pushing the lump premium up was chiefly the improved demand for the feed among steelmakers in North China who consumed more lumps recently when the local supply of sintered ore reduced amid sintering curbs, Mysteel Global noted.

As of September 19, Mysteel's 62.5% Fe Australian iron ore lump premium against 62% Fe Australian fines had risen to an 11-month high of $0.1675/dmtu, growing by a total of $0.0285/dmtu on month.

Steelmakers in North China's Hebei province increased their buying of lumps this month, because their in-house stocks of sintered ore shrank substantially when they had to curtail their sintering operations during the recent months, a Shanghai-based market watcher observed.

For example, most steel mills in Hebei's Tangshan have endured a 20-30% sintering restriction from September 4 as the local government wanted to improve the city's air quality ranking nationwide, and the curb is expected to last until the end of the month, as reported. Previously, most mills in the city had experienced sintering curbs during August 24-31 and the whole of July.

Consequently, steelmakers in North China tended to consume more lumps as a substitute for sintered ore to ensure their blast furnaces (BFs) running at high levels, the sources added.

Mysteel's tracking on 114 Chinese steel mills showed that the feeds of lumps in these mills' BFs climbed to an average of 11.05% over September 8-14, with the ratio being 0.56 percentage point higher on month and also reaching the highest since late July, the latest survey showed.

Meanwhile, the reason that steelmakers raised their usage of lumps other than pellets was because the money that some mills made from selling finished steel became less and some even suffered losses recently, Mysteel Global noted.

Nevertheless, market sources were not so optimistic about the lump premium in the longer term, arguing that the supply of sintered ore in Hebei will recover after those curbs are lifted.

Also, mills' buying interest for lumps may recede on their deepened losses and the rising coke procurement prices. Higher lump feeds into blast furnaces will consume more coke than sintered iron ore feeds and pellets, Mysteel Global notes.