Vale reports higher contract pellet premiums for Q1 after decline in Q4

Brazil's Vale said Dec. 3 it had defined its iron ore pellet premium contracts for the first quarter of 2022 at $55/dry mt for blast furnace grade, priced off 65%-Fe fines indexes -- but this could not confirmed widely by sources.

The Q1 premium level defined by Vale in its price discovery process with clients would be $8/dmt higher than Q4. Vale's reported BF premiums hit a record of $62/dmt in Q3 2021.

Vale said direct reduction contract pellet premiums rose to $58/dmt for Q1, up from $50/dmt in Q4, and compared with $70/dmt in Q3. Vale sells more DR pellets than BF grades, and is said to offer a limited volume of BF grade available outside its joint venture pellet plant customers and offered to plants in South America.

No other settlements for Q1 from other suppliers were reported, with negotiations starting up again after Q4 terms concluded in October and early November, according to several steel and mining executives. The European BF contract pellet market has greater volume pricing against the 62%-Fe index, with the market supplied mainly by European and Canadian-based products.

An increase in BF pellet premiums may yet be contested in Europe, due to greater uncertainty on steel production and demand due to lingering COVID-19 impacts on supply chains and sentiment. Premiums and pricing terms for volumes agreed with Commonwealth of Independent States suppliers and Sweden's LKAB have become a stronger benchmark in Europe, a miner said.

Relatively high coking coal and ferrous scrap prices, compared with iron ore benchmark prices, and strong indicative margins in global steel markets may continue to incentivize pellet demand. All-in pellet prices hit a record high in July, due to a combination of high iron ore base prices and premiums, with Platts Atlantic contract BF pellet price assessment hitting the equivalent of $274.46/mt FOB Tubarao.

Several buyers confirmed Vale's direct reduction pellet premiums for Q1 earlier, S&P Global Platts reported on Nov. 25. Higher scrap and pig iron prices and comparatively weaker pellet prices drove direct reduction iron production in the second half of 2021.

Vale's DR pellet premiums continue to be considered a stronger market reference for deals to converge, due to Vale's sizable volumes in the segment. Other DR pellet producers include LKAB, Bahrain Steel, Rio Tinto's IOC, ArcelorMittal Mining, Metalloinvest, Severstal, Ferrexpo and Samarco. Cleveland-Cliffs produces DR pellets in the US, mainly consumed by its Toledo, Ohio, hot-briquetted iron plant.

Relatively high freight rates between the Atlantic to Asia, and from India to Europe, may limit attractiveness to substitute contract pellets with spot market opportunities, according to sources. Indian pellets may see strongest price realizations in maintaining exports to Asia and China markets, said a buyer in Europe who purchased Indian pellets at a lower relative premium in the spot market earlier in the year.