Singapore — Indian pellet premiums plunged below zero for the first time ever, amid rallying prices for medium grade fines and thin demand for Indian pellet.
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The 64% Fe blast furnace pellet premium was assessed at a discount of 95 cents/dmt CFR North China on Aug. 19, down $2/dmt week on week with its fixed price assessed at $127.50/dmt CFR North China on Aug. 19, up $6.50/dmt week on week.
Like its direct feed counterpart lump, premiums for pellet had been in a steady decline from July in contrast with rising prices for iron ore fines.
Market sources pointed to end-users lowering their pellet utilization after the winter months as one of the key underlying factors for the current trend.
With the lifting of stringent environmental regulations, there is little incentive for end-users to utilize more pellet and lump, a procurement source said. For end-users chasing production efficiency, the preference would be to utilize higher grade fines due to the more complicated adjustments for operations to utilize direct feed cargo, the source added.
Increasingly higher levels of portside pellet inventory amid tight levels of medium grade fines only served to put potential buyers off seaborne cargoes.
End-users who have inflexible need for pellet will prefer to procure from the ports in small volumes due to the illiquid nature and it being a "buyers' market" now, an international trader said.
Market participants said that the risk of being unable to offload seaborne pellet cargoes and having to land at the ports where there was an oversupply of pellet was proving to be too significant to take for many traders.
Many traders would rather put their cash flow in fines where the potential upside is still very attractive, a Chinese trader said.
Sellers also pointed to the general limited pool of end-users who would be keen in securing seaborne pellet cargoes as another hindering factor, with typical buyer profiles having limited access to the portside market or being situated at the river ports.
It is still possible to sell a single cargo for around $130/dmt but definitely not the case if one is looking to sell multiple cargoes the same month, a producer said.
The light seemed to be at the end of the tunnel for low alumina high grade pellets with improving pellet premiums.
The 65% Fe basis spot blast furnace pellet premium was assessed at $4.50/dmt CFR North China on Aug. 19, up $1.30/dmt from Aug. 5.
High grade pellets with low levels of contaminants were in stronger demand as compared to their Indian counterparts due to increased efficiency offered and preferable pricing options, market sources said.
The typical 64% Indian pellet is around 2.7-3% alumina while high grade brands from Europe contain around 1% alumina or lower, a Chinese end-user said. In addition to the significant efficiency offered, usage of such pellets allows end-users to secure cost savings through a much higher alumina allowance in the sinter feed, the source added.
A key difference between high grade pellet brands from Europe or Brazil and Indian pellets is their pricing on a floating price basis.
Indian pellets are typically offered by producers on a fixed cost basis due to credit requirements while high grade pellets are usually traded on a floating basis.
Floating pricing for pellets eases a lot of the pricing risk that the buyer takes.