Seaborne iron ore prices sink to 9-month low; shift in end-user procurement preferences
A lack of certainty over winter production cuts ahead of formal announcements and increasing illiquidity for seaborne cargoes pushed iron ore prices to $79.90/dmt CFR China on Friday, down $2.60/dmt from Thursday and a new low in more than nine months since $78.70/dmt on January 28, after the Vale dam accident, according to S&P Global Platts data.
Market sources since late October have seen an increasing lack of liquidity and end-user demand for seaborne cargoes, with many end-users offering their term cargoes and seeking smaller volumes from the ports instead, to lower their overall fixed cost of production.
Premiums for Pilbara Blend fines, or PBF — the most liquid product in the iron ore market — over front-month Platts IODEX assessments were on a steady decline from $5.35/dmt CFR China on October 4 to $2.30/dmt CFR China as assessed by Platts last Friday.
“Late September, reselling margins for landing Australian cargoes at the ports were at attractive levels and traders were willing to pay over market valuation for any available seaborne PBF to capitalize on these margins,” a Chinese trader said. “However with port inventories steadily increasing, this lack of liquidity carried over to the seaborne market leading to lower premiums for PBF,” the source added.
For traders who do not wish to resell their cargoes at the ports, much lower offers are needed to offload the parcels, especially with end-users offering their own at attractive levels due to port restrictions, a portside trader said.
End-user preferences for reselling their PBF cargoes and seeking cheaper discounted fines at both the ports and on the seaborne market were apparent in the narrowing spread between PBF and alternative medium grade fines.
The actual fixed price differential to 62% IODEX for 59.5% Fe Jimblebar fines, or JBF, was assessed at a discount of $12.40/dmt on September 2, with the differential for 60.8% Fe MAC fines at a discount of $4.95/dmt and for 61% PBF at a discount of $1.20/dmt, according to Platts data. As of Friday, the respective discounts for JBF and MACF have narrowed to $9.70/dmt and $3.80/dmt, respectively, with the discount for PBF remaining relatively stable at $1.25/dmt.
“JBF has seen increasing demand with weaker prices for Brazilian low alumina fines as they both can be blended for a performance output similar to PBF and Newman fines [NMF],” a Chinese procurement source said.
“MACF has had an additional discount with PBF and NMF despite its similar specifications due to its less ideal sintering qualities. However, with end-users looking to lower production levels, this difference in sintering quality is becoming less important and many end-users are finding it a cheaper alternative to PBF,” he added.
“Premiums for MACF in the seaborne market has remained largely flat with those for PBF, weakening from levels over $4/dmt to around $2/dmt [over the front-month 62% index]. Depending on the current region’s sintering cuts, it is indeed a much cheaper option due to their similar specifications,” a Chinese end-user said.
Aside from expecting relatively narrower spreads between prices for mainstream medium-grade fines and discounted products, market sources expect continued demand for lump.
Stringent winter production cuts will mean sintering and blast furnace production restrictions, while more relaxed cuts will mean mainly sintering cuts, another Chinese trader said.
“Hence, end-users are looking to sinter their fines and store them for the winter usage while currently increasing their lump utilization in the blast furnace,” the source added.
“Lump cargoes are still relatively affordable as compared to previous winter prices, so using them to save on sintered feed usage for the winter will work out to be a cheaper production option overall,” another Chinese end-user said.
S&P Global Platts assessed the spot lump premium at 20.5 cents/dmtu on Friday, up 0.5 cents/dmtu on the day.