Premium on China's Lump Iron Ore Imports at 5-Month High

The seaborne price of imported iron ore lumps in China's major markets has risen faster compared with that of imported pellets, but the demand for lumps from domestic steel mills is lower than that for pellets at ports because pellets are seen as more cost-effective, market sources said on Friday.

High-grade ores such as lumps and pellets have been favoured by steelmakers for a while because the frequent emergency production curbs had required the mills to stop using sintering and pelletizing facilities. Consequently, they used larger quantities of imported lumps and pellets instead of sintered ores and home-made pellets, Mysteel Global understands. And more recently, the mills liked the foreign lumps and pellets because steel margins are still attractive, and the mills remain keen to boost output.

As of December 5, Mysteel's 62.5% grade lump premium against 62% fines had increased to nearly a five-month high of US cents 26.6/dmtu, up by 14.9% on week, 25.2% on month and the highest since July 16, the database showed. At the same time, Mysteel's 63% pellet premium against 62% fines had risen to $18.95/tonne, 0.7% higher on week and 2.4% higher on month.

A Shanghai-based market insider explained that several recent transactions for lump cargoes in the seaborne market had contributed to the rise of the lump premium. Conversely, demand for pellet and the pellet premium were both steady.

Moreover, a Tianjin-based trader in North China ascribed the rise of the lump premium mainly to the limited stocks of PB lump at ports, which drove the increase in lump prices overall. But he admitted that the Newman lump his firm holds is relatively hard to sell because of the high price the lumps command.

"By comparison, I heard more pellet deals were concluded by mills because using pellets can save the consumption of coke," he added. The overall cost competitiveness of lumps is undermined because in the blast furnace, extra coke needs to be consumed to smelt lumps than is required for pellets, Mysteel Global understands.

Another trader in East China's Shandong said that once the PB lumps they have on hand are sold, the company won't buy lumps for the foreseeable future as "lumps are not very easy to sell".

As of December 5, lump stocks at China's 45 major ports fell 2.7% on week to 18.24 million tonnes, according to Mysteel's database. Meanwhile, the decline of pellet stocks at these ports was faster than that of lump stocks, with inventories off by 8.3% on week at 5.9 million tonnes, also as of December 5.

Over November 14-27, the ratio of lump feeds in blast furnaces among the 64 Chinese steel mills under Mysteel's bi-weekly survey dipped to 11.97%, down by another 0.38 percentage point over the two weeks, the survey results showed. On the other hand, the ratio of lumps in blast furnaces at the mills averaged 15.55%, at a new high since October 16 and up by another 0.13 percentage point on fortnight.

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.