India: BigMint's pellet export index drops w-o-w

• Iron ore futures prices drop this week
  
  
• Weak market sentiments from China
  
  
• Around 500,000 pellet export deal so far
  
  

BigMint's India pellet (Fe 63%, 3% Al) export index (FOB east coast) decreased by $1.5/t w-o-w to $102/t on 10 July 2024. No major trades were witnessed in this trading week as sellers kept their offers on hold following the price fluctuation in the seaborne market. However, around 500,000 t pellet (Fe 62-63%) export deals were recorded from India in the first ten days of July when global iron ore prices saw some strengthening.

Indian seaborne pellet market remained silent in the first three days of this week as export prices went downtrend. However, in the past week, a major pellet producer sold its cargo in the overseas market as they received decent bids following hike in the global prices.

An Odisha-based producer remarked, "The market did not increase as expected ahead of China's third Plenum. Last week, Indian producers sold decent material at $122-123/t CFR China. However, Chinese mills are currently not interested in Indian pellet cargoes due to import margins and falling finished steel prices in China."

However, buyers have adopted a cautious approach as iron ore futures and spot prices have shown some downtrend from last weekend and are currently not viable for them to purchase Indian premium material. Sellers are waiting for the price improvement as they are expecting around $122-124/t CFR China for new pellet export transactions.

However, domestic prices are still around INR 700/t ($8/t) higher than exports. Pellet (Fe 63%) prices in Odisha's Barbil fell by INR 50/t ($0.5/t) w-o-w to INR 7,200/t exw ($89/t). However, ex-plant realisation for pellet exports in Barbil have dropped by INR 200/t w-o-w and recorded at INR 6,500/t exw ($84/t).

A China-based source commented, "Our present market focus has changed to the portside domestic market in China because our import margin is not going well. Spot cargoes now cost less than seaborne cargoes because of the US dollar's recent rise versus the Chinese yuan. But sellers were not actively participating in the market because of the declining import margins, and steel mills were similarly not interested in buying cargo."

Rationale:

• Three (3) pellet export deals were recorded in mid of last week but not taken under price calculations. Hence accorded 0% weightage in the index calculation Click here for detailed methodology.
  
  
• Eleven (11) indicative prices were received and ten (10) were considered for calculation of the index and given a 100% weightage.
  
  

Factors impacting pellet export market-

• Iron ore fines index cools down: The benchmark iron ore fines index inched down by $1/t to $110/t CFR China on 9 July. Slow demand for finished steel products due to current weather constraints has put pressure on near-term iron ore demand. Severe rainfall and flooding in southern China have caused delays in construction work and transportation, contributing to a drop in seaborne iron ore prices. Spot prices of iron ore fines (Fe 62%) are currently hovering at $110/tonnes (t) CFR China on 10 July, 2024. Prices have fallen from $114/t CFR China earlier last week. However, import margins and losses were reported to be unstable, leading some end-users to shift their focus to the domestic market instead.
  
  
• DCE futures fall w-o-w: Iron ore futures on the Dalian Commodity Exchange (DCE) for the September 2024 contract fell by RMB 51/t ($7/t) w-o-w to RMB 813/t ($112/t) on 10 July. On a d-o-d basis, future prices decreased by RMB 21/t ($3/t) against RMB 834/t ($115/t) yesterday.
  
  
• Portside pellet prices decrease w-o-w: Chinese sources said that Qingdao portside offers for Indian pellets (Fe 63.5%) decreased by RMB 30/t ($4/t) w-o-w to RMB 975/t ($133/t) on 10 July, inclusive of all import taxes and port charges. Meanwhile, prices fell by RMB 20/t ($3/t) d-o-d.
  
  
• Pellet inventories down w-o-w: Pellet inventories at China's major ports inched down by 0.2 mnt to 6.5 mnt on 4 July 2024 compared to the last week, according to SteelHome data.
  
  

Outlook

BigMint noted that the seaborne pellet offers are expected to remain under pressure following the drop in the iron ore spot and future prices. The market may get clarity about the Chinese mills' post the Chinese government's third Plenum meeting.

A trader said that the pellet prices will remain downward in the coming days. Chinese mills are expected to procure cheaper material as production also remains downward due to poor weather conditions in the rainy season.