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Chinese mills shift iron ore procurement preference; JMBF slips into discounts

The Australian Jimblebar Blend Fines, or JMBF, slipped from premiums into discounts against the 62% Fe index as demand for iron ore fines with lower ferrous content and higher impurity levels dropped due to stricter quality requirements among Chinese steelmakers amid high margins.

BHP on April 14 offered a 90,000 mt cargo of 60.5% Fe Jimblebar Blend Fines at a discount of $2.30/dmt over the May average of Argus and Mysteel 62% Fe indexes CFR China, on COREX, for arrival in May.

This compared to a spot deal at a premium of $2.15/dmt for an 80,000 mt JMBF cargo arriving in May on March 31. The premium was short-lived between March 3 to March 31, according to Platts data.

With the recent surge in steel prices and margins in China, there was a shift in procurement preferences away from iron ore products with lower Fe and higher impurities due to an emphasis on productivity.

The 60.5% Fe Jimblebar fines has higher impurities contents, with 3% alumina and 0.12% phosphorus in typical specifications than the other Australian mainstream medium grade iron ore fines.

“Mills are looking to increase the overall ferrous level of the sinter going into blast furnaces to ramp up pig iron production,” said a Chinese trader source.

Such shift in mills’ blending requirements also leads to increasing spot supply of seaborne Australian iron ore fines cargoes with lower ferrous content.

“Higher seaborne prices compared with port stock prices is encouraging mills to resell term-contract cargoes and procure from the quayside instead,” said an end-user source based in Southern China. The source added that “fines with higher ferrous content including Carajas and Newman were kept for mills’ own usage while lower-quality materials like Jimblebar fines and Yandi fines are offered in the resell market.”

The ongoing production cuts in Tangshan and talks of further environmental control measures on steel mills in other regions would keep steel supply tight and support high steel margins beyond the near term.

As such, the penalties and premia per 0.01% of phosphorus and per 1% of alumina are expected to increase to encapsulate the preference for higher quality ores within the medium grade.

S&P Global Platts increased the differentials per 0.01% of phosphorus on April 14 to $2.10/dmt from $1.50/dmt for the 0.1-0.11% range, $2.70/dmt from $2/dmt for the 0.11-0.12% range, and $2.80/dmt from $2.10/dmt for the 0.12-0.15% range.

Other sources also said that the overall drop in premium levels across medium grade fines were expected as “Pilbara Blend fines saw its historically high premium due to traders covering for their short positions and prices for other brands followed,” said a Chinese trader source. “However, such premiums were not sustainable in the first place,” the source added.
Low-grade iron ore fines demand drops

For low-grade iron ore fines, trader sources bemoaned the difficulty of reselling the Australian 56.5% Fe Super Special Fines and the 54%-57% Fe Indian Fines, due to the same preference for medium to higher-grade materials amid high margins.

“Overall raw material costs were lowered by the weakened coke prices in China which opened up the budget for higher quality iron ore,” said a procurement source based in China. “Blending ratio for lower grade materials iron ore fines would drop,” the source added.

The spread between Platts 62% Fe IODEX and 58% iron ore fines index widened $9.30/dmt in a month to $32.40/dmt on April 13 from $23.10/dmt on March 12 amid widening discounts for low-grade materials.
Source: Platts

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