23-08-2017

High-medium grade iron ore fines spread widens to all-time high of $23.55/dmt

iron

The spread between the 65%-Fe and 62%-Fe Iron Ore Index CFR North China prices reached a record high of $23.55/dry mt on August 21, widening $7.60/dmt month on month and $11.55/dmt since the beginning of the year, S&P Global Platts data showed.

This came on the back of a persistently strong demand for the higher-grade material from end-users in China that continued its chase for productive efficiency amid an environment of lucrative profit margins and rallying metallurgical coke prices.

The spot price of square billet in Tangshan rose to Yuan 3,850/mt ($578.10/mt) ex-stock Tangshan on Monday, up 10.6%, or Yuan 410/mt ($61.56/mt), month on month, and up 28.57%, or Yuan 1,100/mt ($165.17/mt), since January 1.

In line with this, mills were heard to be enjoying an upswing in profits, with estimates for overall margins nearly doubling from approximately Yuan 500/mt in first quarter to Yuan 1,000/mt presently, market sources said.

“With such healthy profits, it’s no surprise that high-grade materials are experiencing such demand, the mills are both willing and able to accept these prices,” said a Chinese trader source.

Traders were also heard to be competing with end-users to book high-grade cargoes such as Carajas fines with the anticipation of strong demand for the rest of the year, sources said.

“Traders competing to secure the Carajas cargoes may try to sell the product as a combo with low-grade fines at port,” said a Shanghai-based trader, noting that the strategy may help entice buyers to purchase low-grade ores that remain weak in demand.

Market participants also pointed to the ongoing rally in met coke prices as a contributing factor, as low-silica iron ore requires less usage of the costly impurity-reducing agent, increasing the appeal of the higher grades to mills as it aids to manage their cost while maximizing productivity.

Platts-assessed Premium Low Volume hard coking coal CFR China prices have been on an uptrend since mid-June, reaching $196/mt on Monday, up $56.50/mt, or 40.5%, since bottoming out at $139.50/mt on June 15.

High-grade 65%-Fe Brazilian Carajas fines typically has 1.7% silica content, compared with about 4% silica content for medium-grade ores.

“Carajas is the only fines product with the highest Fe content and low impurities — it’s everything the mills want right now,” said a trader based in Beijing.

Demand continued to intensify, resulting in tightening supply at both the seaborne market and at port, sources said.

“We want more Carajas fines but there aren’t much around — it’s really difficult to secure cargoes,” said a northeastern Chinese mill source.

Outlook on the sustainability of the price uptick was mixed.

While some traders expressed little expectation of the momentum to slow down, based on the level of buying interest seen and the positive outlook on steel margins, others indicated that the current price level appeared to be too expensive and that there were possible alternatives.

“Buyers are especially interested in the higher-Fe materials, so I think the current spread is still reasonable, with even the potential to widen further,” said an international trader source.

“IOCJ can be replaced by scrap in the basic oxygen furnace and I think many mills will increase its usage further,” said southern Chinese mill source, noting the very low silica content of 0.2% inherent in scrap.

Scrap steel prices have risen in the same period, driven by healthy demand from Chinese end-users, recovering Yuan 390/mt ($58.56/mt) from a yearly low of Yuan 1,470/mt ($220.73) on June 16 to Yuan 1,860/mt ($279.29) last Friday, as assessed by Platts.

Despite an uptick of 27% in scrap prices from its year-to-date low, scrap still remained an attractive feedstock for profit-making Chinese end-users, sources said.

“There is a cost advantage of approximately Yuan 500/mt in using scrap, as compared to fines,” the southern Chinese mill source added.

Platts assessed the 65%-Fe IODEX at $101.30/dmt CFR Qingdao on Monday, up $3.55/dmt from last Friday.

Source: Platts

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