India: BigMint's pellet export index falls $5/t w-o-w amid downtrend in global iron ore prices

• Domestic and export realisation gap continues to widen
  
  
• Weak buying interest from Chinese mills for seaborne pellets
  
  

Pellet export prices have dropped this week driven by a decline in global iron ore fines spot and futures indices. The seaborne market has seen weak demand, as Chinese buyers have avoided buying Indian pellets.

BigMint's India pellet (Fe 63%, 3% Al) export index (FOB east coast) decreased by $5/tonne (t) w-o-w to $94/t on 23 October 2024. No export deals were concluded in this publishing window. As per sources, a South Korean mill recently purchased a Fe63% pellet cargo from a producer in eastern India at a decent premium, but the deal is yet to be confirmed by the parties involved.

A trader said, "With Chinese buyers staying away, there's no activity in the export market. Pellet manufacturers are holding back, waiting for prices to improve, especially as their production costs have risen due to higher premiums in recent OMC auctions. NMDC's hike in iron ore prices has also added to production challenges. Producers are experiencing cost pressure but no improvement in demand."

Notably, domestic prices in India were still higher than export offers by INR 2,700-2,800/t ($32-33/t). Pellet (Fe63%) prices in Odisha's Barbil increased by INR 850/t ($10/t) w-o-w to INR 8,600/t ($102/t) exw. Meanwhile, ex-plant realisation in exports from Barbil fell by INR 300-400/t ($4-5/t) w-o-w to INR 5,900-6,000/t exw ($70-71/t).

A supplier said, "The domestic market has outperformed exports, but demand remains weak due to sluggish activity in the finished steel sector. If the index stays at the $100/t CFR China level, Indian producers may need to reduce production soon."

On the other hand, some reports have suggested that Chinese mills have been refraining from new seaborne purchases as they focus on using up their current inventory. This is particularly due to reports of certain regions implementing pollution control measures starting 22 October.

Chinese sources said that Qingdao's portside offers for Indian pellets (Fe 63.5%) fell by RMB 15/t ($2/t) w-o-w to RMB 885/t ($124/t) on 23 October, inclusive of import taxes and port charges.

Rationale

• No pellet export deal was recorded this week, and thus, this category was not taken into consideration for price calculation. Hence, T1 trade was accorded 0% weightage in the index calculation. Click here for the detailed methodology.
  
  
• Nine (9) indicative prices were received, and six (6) were considered for calculating the index. These were given a 100% weightage.
  
  

Factors impacting pellet exports

• China's iron ore fines prices fall w-o-w: The benchmark iron ore fines index dropped by $5/t w-o-w to $100/t CFR China on 22 October. Prices fell amid weak market sentiment, driven by low buying interest, as several northern Chinese cities, including Tangshan and Handan, implemented level-2 emergency responses due to heavy air pollution forecasts. This prompted steel mills to prioritise using existing inventory rather than procuring new material, thereby reducing demand.
  
  
• DCE futures fall w-o-w: Iron ore futures on the Dalian Commodity Exchange (DCE) for the January 2025 contract decreased by RMB 36.5/t ($5/t) to RMB 746/t ($105/t) on 23 October. On a d-o-d basis, prices fell by RMB 16/t ($2/t) against RMB 762 ($107/t) yesterday.
  
  
• Chinese portside pellet inventories rise w-o-w: Pellet inventories at China's major ports increased by 0.25 mnt w-o-w to 5.65 million tonnes (mnt) on 17 October, according to SteelHome data.
  
  

Outlook

According to BigMint's analysis, seaborne pellet prices are expected to stay low due to weak demand from China and a lack of buying interest globally. Unless Chinese buyers re-enter the market or there's a significant shift in market fundamentals, prices are likely to remain subdued.