India: BigMint's pellet export index dips to over three-month low

• Sharp drop in global spot fines, futures w-o-w
  
  
• Chinese mills take maintenance shutdowns
  
  
• High pellet inventories at Chinese ports
  
  

The Indian pellet export market down-trended this week amid limited inquiries from buyers' while sellers' were cautious in selling premium material in the sea-borne market. Overseas buyers were keenly watching the impact of the Chinese Third Plenum as they were seeking cheaper materials to cushion their import margins.

BigMint's India pellet (Fe 63%, 3% Al) export index (FOB east coast) decreased by $4/t w-o-w to $93/tonne (t) on 24 July 2024. The index has continued its downward trajectory, hitting over a three-month low. No pellet exports were recorded from India in the last one week.

As per sources, some buyers offered a $4-5/t premium on the global fines index but following the current pellet manufacturing cost post-OMC auction, major producers were not interested. However, inventory at the Chinese ports are very high amid weak demand. Mills are losing margins therefore opting out for maintenance shutdowns.

A pellet producer said, "After the sharp fall in the global iron ore fines and futures, Indian pellet prices also moved southward this week. The Chinese steel mills were taking maintenance shutdown which created a lower demand scenario in the China market."

Notably, domestic prices in India are still INR 1,200/t ($14/t) higher than in exports. Pellet (Fe 63%) prices in Odisha's Barbil fell by INR 50/t ($0.5/t) w-o-w to INR 7,100/t exw ($85/t). However, ex-plant realisation for pellet exports in Barbil have dropped by INR 300/t w-o-w to INR 5,800-5,900/t exw ($70-71/t).

A China-based source commented, "The lower steel demand had led to a certain number of steel mills shutting down which led to production curtailments. This increased post-the Third Plenum meeting and reduced the raw pellet demand in the Chinese domestic market. Mills were purchasing Australian origin lower grade fines to save manufacturing costs."

Pellet prices were negatively impacted by market pessimism due to uncertainty about the Chinese government's economic resolution and implementation of decisions from the Third Plenum.

Rationale:

• No pellet export deals were recorded in the last one week and were not taken under price calculations. Hence these were accorded 0% weightage in the index calculation Click here for detailed methodology.
  
  
• Nine (9) indicative prices were received and six (6) were considered for calculation of the index and given a 100% weightage.
  
  

Factors impacting pellets export market

• Iron ore fines index decline w-o-w: The benchmark iron ore fines index fell by $7/t to $100/t CFR China on 23 July. Iron ore prices fell following softening downstream steel demand affecting raw material supply combined with news of reduced blast furnace operations and increased maintenance from certain steel mills. High iron ore inventories at Chinese ports are another factor for sluggish seaborne demand.
  
  
• DCE futures down w-o-w: Iron ore futures on the Dalian Commodity Exchange (DCE) for the September 2024 contract dropped by RMB 29.5/t ($4/t) w-o-w to RMB 775.5/t ($107/t) on 24 July. On a d-o-d basis, futures prices remained stable against yesterday.
  
  
• Portside pellet prices decrease w-o-w: Chinese sources said that Qingdao portside offers for Indian pellets (Fe 63.5%) decreased by RMB 15/t ($2/t) w-o-w to RMB 950/t ($130/t) on 24 July, inclusive of all import taxes and port charges. Meanwhile, prices improved by RMB 10/t ($1/t) d-o-d.
  
  
• Pellet inventories up w-o-w: Pellet inventories at China's major ports inched up by 0.25 mnt at 6.7 mnt on 18 July 2024 compared to last week, according to SteelHome data.
  
  

Outlook

BigMint notes that seaborne pellet offers are expected to remain under pressure as major mills in China have taken a maintenance shutdown while a few are curtailing production. Sellers are cautious and looking for better prices in the domestic market.