Home / Commodities / Commodity News / Analysis: High grade iron ore fines demand expected to recover next spring on long-term fundamentals

Analysis: High grade iron ore fines demand expected to recover next spring on long-term fundamentals

Premiums for high grade fines with low alumina content have weakened towards the end of the year, but market participants expect demand to pick up once steel margins have recovered next spring.

Stay up to date with the latest commodity content. Sign up for our free daily Commodities Bulletin.

Sign Up Despite the current tepid demand for high grade fines with end-users looking to lower production costs, market participants have pointed to strong underlying fundamentals that will support a recovery of high grade premiums in the spring. The shifting of existing steel production capacity from smaller to large blast furnaces will support a growing preference for high grade fines due to the sensitivity of large blast furnaces to impurities in raw materials.

Brazilian miner Vale has said that it expects its Carajas fines to command a premium of around $16-21/dmt over the 62% iron ore index in 2019, with its continued investments into its high grade iron ore production.

The Brazilian monsoon season in January is expected to reduce supply for Brazilian fines due to slower loading rates for vessels, which may support seaborne and port prices for Carajas fines.

A total of 15.5 million mt of iron ore was exported from Ponta Da Madeira from January 1 to February 3 earlier in the year, 27% lower than the five-week average export volume from June 11 to December 1. Some 20.5 million mt of iron ore was exported between October 29 to December 1.

Current weak steel margins have led to poor demand for high grade fines, with end-users increasing their utilization of discounted medium and low grade fines.

Market sources have indicated a continued utilization rate of high grade fines like Carajas fines as compared to the earlier half of 2018 is no longer feasible economically until steel margins recover.

In addition, the ratio of Carajas fines in a blast furnace raw feedstock results is relatively inflexible as compared to medium grade Australian fines, and hence cannot be readily adjusted in line with changing costs without a significant impact on blast furnace performance.

The spread between the Platts 65% Fe and 62% Fe iron ore index as assessed by Platts was at an all year high of $28.55/dmt on July 13-16, before declining below $20/dmt levels on November 8. The current spread as of December 6 is $15.70/dmt, 26% lower than the average spread of $21.26/dmt from January to December 6.

Domestic HRC steel margins have fallen from an all year high level of $167.46/mt on June 12 to levels below $30/mt in late November, while rebar steel margins have fallen from an all year high of $170.09/mt to under $70/mt in the same period.

Continued forecasts of low steel margins until next spring from market participants have put Chinese end-users away from the seaborne market for high grade fines, also in part due to the notable differences in shipping time.

The shipping time from Ponta da Madeira and Tubarao where Carajas fines are usually exported to Qingdao takes an average of 45 days, while the shipping time from Saldanha Bay where high grade Assmang iron ore is exported to Qingdao takes an average of 25-30 days.

The significantly longer duration as compared to 13 days from Dampier and Port Hedland where mainstream medium and low grade Australian fines are shipped represents a greater price risk for buyers purchasing on a fixed-price basis.

High inventories of Carajas fines have been observed at the port stocks market due to its increasing illiquidity. Some market sources have noted that the economic blend of low and high grade fines for smaller private mills have become increasingly expensive in part due to higher prices for low grade fines without an equal lowering of Carajas fines prices per dmtu.

Steel margins are identified as the key factor for reviving demand for high grade fines. A sustained recovery will have to be observed before a committed increase in purchase volumes for high grade fines can be made.

Carajas fines are mainly used by big state-owned steel mills with large blast furnace capacities, which are currently operating at about Yuan 100/mt ($14.53/mt) steel margins as compared to levels of around Yuan 700-1,000/mt in the middle of the year.

Some China mills expect steel prices to recover after the Chinese New Year holidays in February, when spring construction projects can be started, which will result in a significant increase in demand for higher grade fines.

Earlier in the year, export volumes from Ponta da Madeira totalled 27.1 million mt from January 1 to March 3, rising by 11% to reach a total of 30.1 million mt from March 5 to May 5.

Higher supply of high grade fines is also expected to be available in the market, with the targeted launch of Mt Gibson Iron’s Kooland fines in March 2019. The expected specifications of the new high grade product are 65.5% Fe, 0.9% alumina, 4.5% silica and 0.01% phosphorus.

Production levels are expected to reach a rate of 2.5 million mt a year in mid-2019, with an increase in production rate to 3-4 million mt in 2021.
Source: Platts

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping