Singapore — Rising prices of high- and low-grade iron ore fines are making combining them to produce sinter a more expensive proposition than using just medium-grade fines, according to market participants and an analysis by S&P Global Platts.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
Using a blend of high- and low-grade fines was Yuan 5/wmt (73 cents/wmt) more expensive than using medium-grade fines alone as of Sept. 10, when doing so a week ago on Sept. 3 made it Yuan 20/wmt ($2.95/wmt) cheaper, according to calculations using prices of port stocks compiled by Platts.
As a rule of thumb, market participants compare the average price of 65% Fe Carajas Fines and 56.5% Fe Super Special Fines with the price of 61.5% Fe Pilbara Blend Fines to determine the cost effectiveness of a high-low grade combination versus medium-grade fines.
With rising iron ore prices having eroded steel margins recently, Chinese steelmakers are closely monitoring the spread between the two categories to optimize sintering costs.
Prices of seaborne cargoes have also shown similar trends. On a dry metric ton unit basis, the average of Platts 65% Fe and 58% Fe CFR China indexes became notably cheaper than the Platts 62% Fe index since mid July. The cost advantage of the high-low grade combination peaked in the first half of August, when mills were heard to be switching blends away from medium-grade fines. Since then, however, the cost advantage has been shrinking quickly to levels that are now negligible.
Sources pointed to the tight port stocks for low-grade fines as the main reason behind the quick loss in cost advantage of the high-low grade combination. The weekly shipment volumes from Australia's biggest low-grade fines producer Fortescue Metals Group, or FMG, were trending downward since June, according to cFlow, Platts trade-flow software. As a result, availability of FMG products has become very tight at Chinese ports, sources said. Low-grade fines supply from India was also tightening due to logistical bottlenecks during the monsoon season, a recovery in India's domestic demand, and reduced iron ore output due to a delay in mine ownership handover.
As steel margins remained under pressure in China, especially for long steel producers, some were heard to be contemplating switching blends again. "As stock levels are pretty low at the mills, the switch could be much faster than usual," said an end-user. This could hold true, especially for small blast furnaces due to their operational flexibility. "It is difficult to predict which segment of the market would become the next winner though, as nothing is really cheap at current prices," said the same source. Some expected direct feeds to benefit due to their cost efficiency relative to fines. As current sintering cuts in Tangshan are strictly enforced and ex-China demand recovers, a drawdown in direct feed stocks at Chinese ports have already started.