Seaborne pellet cargoes surge to new all-time high on supply tightness

Singapore — Seaborne iron ore pellets continued on a sharp upwards trajectory, breaking another all-time high on Dec. 2 on the back of continued supply tightness.

S&P Global Platts assessed the 64% Fe blast furnace pellet at $160/dmt CFR North China on Dec. 2, up $11/dmt week on week.

Strong domestic Indian buying price levels and recovering ex-Chinese steel production have led to limited supply availability for cargoes into China amid current high price levels for iron ore fines.

Delays in handovers of auctioned iron ore mine sites have led to a squeeze in domestic Indian iron ore supply, pushing domestic pellet prices above the Rupees 11,000/mt mark at Raipur on an ex-plant basis.

High prices for coke have also pushed Indian end-users towards increasing their utilization ratio of pellets, due to a lower coke consumption rate as compared with fines and lump.

Market sources said they expected a lack of available spot pellet cargoes for exports to continue into December on strong domestic demand and uncertainty over governmental regulations.

Domestic Indian prices when converted to a CFR China basis after accounting for trucking and freight costs are higher than what Chinese buyers are willing to pay by about $8-10/dmt, a producer said. The ease of logistics and lack of foreign currency conversion are additional attractive points, the source added.

However, with a significant level of production capacity of India's pellet production meant for exports, several producers expected some pellet cargoes to be available for sale into China.

There are Chinese end-users who do not have access to the portside market and they are likely to be keen buyers for any available cargoes, an international trader said.

Several sources pointed to the ramping up of Southeast Asian steel production as another driving factor for demand, despite their relatively limited demand volumes.

The small quantities needed by Southeast Asian end-users usually have little impact on the seaborne market, but their end of the year demand coincides with a period of very limited spot cargoes, a trader said. Their demand tends to be largely inflexible and fixed, with the small vessel capacities needed resulting in an additional price premium, the source added.

Continued calls from Indian steelmakers for restrictions on Indian iron ore exports including pellets cast further uncertainty over the Indian pellet export market.

Market participants pointed to a certain unwillingness from some producers to consider January spot shipments given the risk of a export tariff or temporarily ban being imposed.

While there are limited cargoes being exported for now, the continued delay in restarting domestic mining operations at auctioned mines is still a major hindrance for Indian end-users, a seller said. There will be further pressure on authorities to impose a export restriction of sorts once steel margins start to fall, the source added.

Recovering steel production in ex-China since the start of the fourth quarter has led to a major diversion of high grade cargoes away from China with producers preferring the security of longer term contracts with non-Chinese end-users as opposed to selling into China on a spot basis.

Several traders pointed to high grade pellet cargoes being only available at the portside market with prices expected to remain supported given the lack of seaborne alternatives.

Non-mainstream high grade pellet cargoes from the US and Mexico are seen by some end-users as a cheaper low alumina pellet alternatives in light of current price levels, a Chinese end-user said.

Although overall supply tightness for pellets were unlikely to ease in the near term, some market sources pointed to possible near-term price ceilings as Chinese end-users sought cheaper alternatives.

The main advantage of pellet now is that it has lower coke consumption rates as compared to lump but at current price spreads, some end-users are already finding it cheaper to switch back to lump for their direct feed needs, a procurement source said.

In small quantities, South African lump is a viable alternative to Indian pellet without much loss in production efficiency and at a overall pricing discount despite the increased coke usage, a trader said.