Seaborne lump premiums rise to all-time high on surging demand, tight supply
Seaborne spot lump premiums surged to an all-time high of 51.05 cents/dmtu on March 4, S&P Global Platts data showed, on the back of further sintering cuts and tight supply.
The implementation of further sintering and production cuts in Hebei over the past week continued to fuel end-user demand for lump cargoes in both the seaborne and portside market.
Market sources expect end-users to continue their current levels of lump utilization or even increase their usage to maximize their production efficiency with steel margins at relatively attractive levels.
End-users have been looking to improve their steel production levels amid the recent steel margins and are likely to get around environmental restrictions with the utilization of more lump in their raw material feed, a Chinese trader said.
Several traders indicated a general lack of willingness from both traders and end-users to sell their seaborne cargoes, given the prospect of higher lump prices in the portside market.
During the Platts Market on Close assessment process, Forchi Holding Pte. Ltd. was bidding for a 62% Fe Pilbara Blend lump (PBL) cargo at 49 cents/dmtu CFR Qingdao over the April average of IODEX, for 70,000-100,000 mt, with a load port laycan of March 30 to April 14.
Market participants with lump cargoes on hand indicated that lump premiums would have to be closer to 60 cents/dmtu for them to consider selling given the difficulty in securing lump cargoes at the port.
Liquidity continued to be poor in the portside market with sellers continuing to raise their offers on surging demand. Market sources pegged the current portside lump premium to be around 55-60 cents/dmtu with the fixed price equivalent over $10/dmt higher than seaborne cargoes.
There are many reselling options for those with lump cargoes on hand, another Chinese trader said. End-users situated near river ports are also willing to pay high premiums for lump cargoes due to a lack of access to the main Chinese portside markets, the source added.
Although several sources viewed current levels of lump usage as unsustainable without the current levels of sintering restrictions, expectations of environmental controls to remain in place until after the upcoming Two Sessions at least were seen as supportive for short-term lump demand.
Supply of mainstream lump cargoes is expected to tighten further following delayed shipment schedules for Australian lump in February and lesser availability for Chinese market buyers, market sources said.
Strong production levels from Japanese end-users have led to increasing lump demand, resulting in the securing of more Australian lump cargoes with higher premiums as well as procuring of lump cargoes from Chinese ports, a procurement source said.
“BHP was negotiating lower lump volume to be replaced by fines for our March combination cargoes,” a Chinese steelmaker source said. “Long-term contracts have to be fulfilled before any spot cargoes are made available in the market,” the source added.
The trend of stronger lump demand over the past few weeks has seemingly eluded non-mainstream lump cargoes but market participants expect a change in this trend, following lower coke prices and limited mainstream lump cargoes.
South African lump brands typically require higher coking costs due to their higher melting points compared to Australian lump and tend to be valued at discounted levels to mainstream Australian lump brands in times of high coke prices despite their higher Fe content.
Lower grade lump brands like Fortescue lump have seen an increase in demand following a spillover in mainstream lump demand and as a result of improving cost-efficiency, an international trader said.
A spot tender for 69,000 mt of 59% Fe Lump Ore Non-Screened Guaiba (LONS) was heard to have been concluded on March 2 at a discount of $4.90/dmt over the 62% Fe index, loaded on Feb. 16, up from a discount of over $11/dmt heard in late December.