High-medium grade iron ore spread widens
The price differential between Argus-assessed 62pc and 65pc iron ore fines widened to a record high yesterday, driven by robust demand for the IOCJ grade and sluggish buying interest for most medium-grade fines.
The spread between Argus 65pc fines and the Argus ICX price for 62pc fines widened to $28.35/dry metric tonne (dmt) yesterday, a level not seen since the assessments began in May 2013. The 62pc-65pc index price differential has widened to more than $27/dmt in the first two trading days of July, up from $22-25/dmt in June and $12-15/dmt at the start of the year.
Rising prices for 65pc IOCJ fines, a key input for the Argus 65pc price, have been the main factor for the increase. A cargo of 65pc IOCJ fines with early June loading dates sold at $83.05/dmt on 28 May on the Corex online trading platform, while an early July loading cargo sold at $91.70/dmt on 29 June on the platform. The Argus 65pc fines index has increased by 6pc since 1 June, while the ICX price has fallen by over 2pc over the same period.
“IOCJ is the most sought fines in the market now, which has pushed up the 65pc index,” a north China trader said.
Soaring penalties for alumina and tight supplies of low-alumina fines from Brazilian mining firm Vale have helped blow out the differential between high-grade and medium-grade fines.
Vale’s BRBF fines and IOCJ fines have 1.5pc alumina each compared with an alumina content of as much as 2.6pc in PB fines, the most liquid seaborne product that is supplied by Australian mining firm Rio Tinto. This amounts to around a 1pc alumina difference between the major sources of liquidity for the 62pc and 65pc indexes.
The Argus alumina value-in-market adjustment increased to $6.50/dmt per 1pc alumina last week from $1.65/dmt per 1pc at the end of May, or about a $5/dmt increase over the same period where the 62pc-65pc index differential rose by more than $7/dmt from below $20/dmt in late May.
Trading firms could consistently count on premiums to trade floating basis PB fines cargoes, but these are have been trading at a discount of 50-80¢/dmt to the monthly 62pc index average in the off-screen market. Fixed price screen deals of 61pc PB fines have been in a $61-65/dmt range over the past month.
Rio Tinto may lower PB fines alumina levels to 2.35pc by removing RTX-F fines from the PB fines blend to lift its floating premium. Rio Tinto has started offering RTX fines as a standalone product to Chinese steel mills.
Shrinking production of domestic concentrate because of environmental restrictions on open-pit mining in China has lifted demand for imported low-alumina ores including BRBF fines and IOCJ fines. Mills are trying to seek cheaper options for low-alumina fines, such as Mauritanian grades, but these have limited supplies. Several steel mills in south and north China have lifted the proportion of Brazilian fines significantly in their furnace burden over the past month.
Mills are also using more lump in the furnace burden, as prices of 62pc lump cargoes continue to lag 65pc fines prices despite the lump premium to the 62pc fines index currently at a year’s high.
The increase in 65pc prices has also pressured the floating premium of imported pellet feed concentrate cargoes, which are offered on a 65pc fines basis. An offer yesterday for low-sulphur Chilean Atacama concentrate was at a $5/dmt premium to the 65pc index, while a similar cargo was offered at a $8/dmt premium to the index in mid-June.