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Australia's Fortescue narrows Oct iron ore term contract discounts

Highlights

FMG narrows discounts for all term contracts

Robust Chinese demand for Fortescue brands

Market view mixed

  • Author
  • Kyla Koh
  • Editor
  • Debiprasad Nayak
  • Commodity
  • Metals

Australian iron ore miner Fortescue Metals Group has further narrowed discounts for term contracts across Super Special Fines, Fortescue Blend Fines and West Pilbara Fines brands for the month of October, its contract customers said Sept. 28, as demand remains firm for low-grade fines from Chinese mills.

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The discounts for SSF basis the October average of Platts 62% Fe index, or IODEX, dropped to 5.75% from September's 9.75%. Meanwhile, FBF stood at 2%, down from September's 5.5%, and WPF at 0.25%, down from September's 2%.

FMG also announced the October discount for FMG Lump at 3.5%.

Fortescue was not immediately available for comment.

The month of September saw firm demand for low-grade fines and high prices due to the narrowing spread between the medium-grade and high-grade fines, resulting in a strong preference for mills to blend low- and high-grade fines as a more cost-effective option, according to market sources.

Some market sources acknowledge the increase in prices reflected the firm demand for the low-grade fines throughout the month, particularly with the tight supply at portside observed at the portside. On the major Shandong ports, the tradeable SSF resources were running very low and the buyers had to request for advance sales to secure some supply delivery in the following days.

"Even the SSF inventory in the North of China is lower now," a China trader said.

"Mills' demand for low-grade fines would likely remain good as mill margins are poor and will still need to purchase low grade (fines)," a China-based trader said, "Although Indian fines could be a cheaper low-grade fines replacement, most of the end-users are sticking to FMG products due to the stable supply and quality," the source added.

The other Australian ores with Fe lower than 60% also saw a surge in prices in September. Australia SP10 fines were heard being concluded at a discount of 3.7% over November IODEX on Sept. 27, loading Oct. 31–Nov. 9 from Australia to China.

While some further narrowing of the October discount was expected, some market sources responded that the significant increase was more than they bargained for.

With persistent low production margins and a consistently strong demand observed for low-grade fines in September, the market was prepared for Fortescue to further narrow its contract discount, according to market sources.

"The October (FMG) discounts may bring up portside prices and demand may see a slide. It will become expensive to use these fines in mills" a Chinese iron ore end user said.

"Steel mills might need to reduce the usage of SSF and FBF after the week-long holiday on the cost consideration," said another steel mill source based in East China.

Platts, part of S&P Global Commodity Insights, assessed 58% Fe Iron Ore Index at $106.65/dmt Sept. 28, up $6.65/dmt from the last adjustment date of Aug. 30.