Australia's FMG narrows discount for Apr iron ore fines as end-users opt for lower grades

Singapore — Australian miner Fortescue Metals Group narrowed the discounts for its April-loading term contracts for four iron ore grades as end-users increasingly opt for lower grade cargoes, contract customers said Tuesday.

The discount for FMG's 58.3% Fe Fortescue Blend fines was set at 10% against Platts' IODEX assessments in April, down from 11% in March, they said. For 56.7% Fe Super Special fines,

the discount is 14% for April, down from 16% for March, the customers added.

For 57.3% Fe Kings fines, the term discount was set at 3% for April, down from 6% for March, while for 60.1% West Pilbara fines, the discount was set at 3%, down from 4%, sources said.

The narrowing of discounts for April comes as procurement preferences increasingly shift to lower grade cargoes, as steel margins come under heavy pressure from high steel inventories during the coronavirus pandemic.

For Fortescue lump, the term discount was stable from the previous month at 10%, sources added.

These iron ore products are priced against the Platts 62% Fe IODEX assessment, with an adjustment for iron content.

FMG declined to comment when contacted by S&P Global Platts on Tuesday.

The similar sintering properties for SSF and FBF make them ideal cheaper alternatives to mainstream Australian fines like Pilbara Blend fines or Newman fines, and in limited amounts at current production rates, the loss in efficiency versus mainstream grades is quite minimal, a Chinese trader said.

WEAKENING IRON ORE PRICES MAY LIMIT NARROWING OF DISCOUNTS

There were market sources who saw a cap on further narrowing of discounts in the near term amid weakening price levels of iron ore.

Iron ore prices have tumbled from around $90/dmt levels in early March to around $80/dmt currently, and with weakening premiums seen for PBF, the cost-efficiency that low grade fines provide over medium grade options is becoming increasingly limited, an international trader said.

Depressed iron ore prices in the second quarter may lead to a shift in preference back towards medium grade fines, a procurement source said. For now, it is difficult for low grade fines to see further demand as the high grade-low grade mixture is not economically feasible, the source added.

Amid strong premiums for lump at the portside market, sources saw limitations in a carryover to alternative lump products on largely inflexible demand.

Portside lump premiums for Newman and Pilbara Blend are expensive but there is a lack of end-user willingness to switch to alternative lump brands due to the adjustments needed for the blast furnace feedstock.

Some end-users are able to utilize other lump alternatives to replace their Australian lump usage but in very limited amounts, due to the sensitivity of chemical and physical specifications for direct feed products, a source said.