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Pellet premium plunge but fails to replace iron ore lump on alumina concerns

Singapore β€” S&P Global Platts assessed 65% Fe pellet premium at $29.1/dry mt CFR North China on Wednesday, 67.5% lower from the high of $89.55/dmt on September 5, while lump premium only slipped 12.2% from 35.43 cents/dmtu CFR North China to 31.1 cents/dmtu over the same period as the alumina content difference is the key factor driving the demand for lump, end-users said.

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Steelmakers need to balance alumina level in blast furnaces by adding sintered ores, lumps, and pellet as feedstock. Steel mills have refrained from using more pellet despite its cost-effectiveness.

"Sintered ores already contains high alumina, using more high alumina Indian pellet is not going to help steel production," a procurement source from Beijing said.

Despite the drop in pellet prices, sellers at ports said that not many mills have changed from using lump to pellet, even during the recent sintering control in Shandong province.

Indian pellet normally contains 2.7% alumina, while mainstream Australian lump contains 1.5% alumina typically. Chinese domestic pellet contains less than 1% alumina and is still popular among buyers. Lump inventory remained relatively tight at Chinese ports, while supply of imported pellet is still sufficient.

"Although pellet looks cheaper now, the whole feedstocks blending will need to change if using pellet to replace lump," a private steelmaker said.

The usage of low grade fines and Jimblebar blend fines drive up the alumina content of sintered ores in blast furnaces, sources said.

-- Lu Han, lu.han@spglobal.com

-- Edited by Elizabeth Thang, newsdesk@spglobal.com