India: BigMint's pellet export index up $4/t w-o-w tracking global iron ore price recovery

• Iron ore spot, futures edge up w-o-w
  
  
• Fundamentals yet to improve amid lower export realisation
  
  
• Decent trade volumes recorded in domestic market
  
  

BigMint's India pellet (Fe 63%, 3% Al) export index (FOB east coast) increased by $4/tonne (t) w-o-w to $96/t on 10 April 2024. Pellet prices increased this week post Qingming holidays in China. However, no deals were heard in this publishing window amid weak buying interest in the overseas markets.

Pellet prices globally increased over the last week following the sharp increase in the Chinese spot iron ore fines and futures prices. However, not much transactions were seen amid lack of decent demand.

A trader said, "We are expecting at least a $15/t surge in prices in order to sell material overseas market, given higher domestic prices. A few weeks ago, an average of 4-5 cargoes per week were concluded from India. However, currently no deal is being witnessed".

An eastern India-based pellet maker said: "Prices of pellets on the paper market have registered an increase, although the current price level remains modest, posing challenges for sellers. Furthermore, inquiries have remained relatively subdued. Consequently, we have adopted a cautious approach and opted to hold offers in order to avoid undue risk exposure. Conversely, the domestic pellet market has exhibited comparatively greater strength, with a significant uptick in transactional activity over the past week, which has triggered a price increase."

Most Indian pellet producers are selling material in the domestic market instead of exporting as they are getting decent margins. The port-based plants are also looking for more domestic deals.

Notably, BigMint recorded around 300,000 t pellet deals in the domestic market. Domestic prices have improved by INR 200-400/t ($2.5-5/t) following the hike in sponge iron and finished steel prices.

A trader stated that the current export offers from India are not high enough. Although the Chinese market has shown signs of recovery this week, buyers and steelmakers are hesitant to purchase materials due to uncertainty in flat steel sales and higher inventory at Chinese ports. There is still a $15/t gap between domestic sales and export margins for pellets.

Domestic realisations are higher by INR 1,100/t ($13.5/t) compared to exports. In the local markets, pellet (Fe 63%) prices rose by INR 200/t ($2.5/t) w-o-w to INR 7,500/t exw ($91/t) in Barbil, eastern India. BigMint's pellet export ex-plant price realisation for Barbil increased by INR 300-400/t ($4-5/t) to INR 6,300-6,400/t exw ($72-73/t) this week.

On the other hand, Chinese sources said that portside offers of Indian pellets (Fe 63.5%) have increased by around RMB 30/t ($4/t) w-o-w on 10 April. Offers were recorded at around RMB 930/t at ($129/t) Qingdao, inclusive of all import taxes and port charges.

According to reports, demand for seaborne pellets in China is low as buyers are only interested in purchasing at lower price levels. The surge in prices was driven purely by sentiment and not supported by any substantial change in fundamentals.

Rationale:

• No pellet export deal was recorded but not considered for price calculation. It was given nil weightage in the index calculation Click here for methodology.
  
  
• Ten (10) indicative prices were received, and six (6) were considered for calculation of the index, and given a 100% weightage.
  
  

Market dynamics

• Iron ore spot prices up w-o-w: The benchmark iron ore fines index increased $6/t w-o-w to $108 /t CFR China on 9 April. Seaborne iron ore prices rose amid improved buying interest following the recovered steel margin. However, mills are still reluctant to use high grade, opting instead for lower grade fines. Market participants expect that demand might increase in the second quarter of CY24 with mills restocking more often on improving margins.
  
  
• DCE futures rise w-o-w: Iron ore futures on the Dalian Commodity Exchange (DCE) for the September 2024 contract sharply increased by RMB 64.5/t ($9/t) w-o-w to RMB 813.5 ($112/t) on 10 April. The prices remained largely stable on a d-o-d basis.
  
  
• Pellet inventories at Chinese ports rise: Pellet inventories at China's major ports inched up by 0.2 mnt to 7.5 mnt on 2 April compared to the last week, according to SteelHome data.
  
  

Total pellet volumes exported from India was recorded at around 137,250 t in the first week of April compared to nil exports in the last week, as per vessel line-up data. Exports of iron ore pellets, likewise, increased nearly 80% y-o-y to 11.3 mnt in FY'24 as against 6.3 mnt in FY23, data show.

Outlook:

According to BigMint's analysis, the pellet export market may remain volatile in the coming days. Although Chinese finished steel sales and margins showed some recovery, it is doubtful whether that recovery will be sustainable.