Seaborne iron ore lump premium plummets 74% since late-June; may recover in Q4
The seaborne iron ore lump premium has fallen by 74% over the past two months as steel mills reduced usage of lump in the steel-making process due to thin steel margins, preferring to use domestic ores and imported fines in their feedstock blending ratio.
S&P Global Platts assessed the iron ore spot lump premium at 12 cents/dry mt unit on August 30, which was the lowest level since January last year. At the end of June, the premium stood at 473 cents/dmtu.
As domestic concentrate prices have been consistently lower than imported iron ore this year, steelmakers located in northern China have preferred domestic concentrate or pellets over imported lump.
“Usage of lump ore in the feedstock ratio fell by at least 3% in the past six months,” a source at a large trading house said.
The pressure on lump premiums was compounded by lump stocks at Chinese ports climbing quickly since July to around 19 million mt by late-August, according to industry sources.
“Australian miners shipped more lump to China in July, which created supply pressure and contributed to the lump premium falling quickly,” an international trader said.
However, some market participants felt the lump premium could recover in the fourth-quarter.
“We have increased usage of lumps by 2%-3% as prices fell to a more reasonable level,” northern China-based steelmakers said.
Expected environmental controls on steel-making emissions during the winter also had the potential to boost lump demand, a Chinese trader said.
Northern China’s Tangshan has raised steel output cuts over September 28 to October 4 slightly.
According to S&P Global Platts Analytics, Chinese domestic hot-rolled coil margins returned to positive territory on August 30 for the first time in a month, reaching $4.78/mt. Rebar margins recovered towards the end of August and were $20.14/mt on August 30.
Some steel market participants believed margins would further improve due to lower iron ore prices.