London — A sustained six-month decline in spot pricing relativity for 65% Fe fines compared to benchmark 62% Fe fines since a peak in July continued into January, according to an analysis by S&P Global Platts Wednesday.
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The Platts 65% Fe fines index fell to a 12% premium over IODEX 62% Fe fines on a dry mt unit equivalent basis this week, down from December's average of 16.6% premiums for 65% Fe fines.
The premium reached close to 40% in July. IODEX fell slightly in December to $69.20/dry mt CFR China, from November's average of $72.27/dmt.
The Vale Carajas IOCJ 65% Fe fines product has seen reduced trade frequency into Chinese ports in the fourth quarter, as demand weakened with lower steel prices. At the port, lot sales in local currency, and further blending were head to have increased, to meet changing demand at lower prices.
Seaborne Vale IOCJ spot trade on a CFR China basis totaled around 16.6 million mt in 2018, while just over 2 million mt was reported for Q4, according to market data collected by Platts. This was around half the rate of trade in IOCJ earlier last year. So far in January through to Tuesday, there have been just under half a million tons in four trade, based on Platts data.
The decline in trade and pricing for 65% Fe relative to iron ore is a consequence of changing market demand and steel prices, along with margins, a global iron ore marketer said.
China's market now compared to earlier in 2018 is significantly different in demand and interest to pay up for high grades of iron ore, he said.
Another industry source, with experience in high grade iron ore markets, expected the 65% Fe fines premium to rise again later this year.
The current lull in the differential is not expected to persist, he said. The trader pointed out the 65% Fe to IODEX spread as it stood currently may lead to demands in contract talks for lower blast furnace iron ore pellet premiums for 2019 compared with record high levels in 2018.
There may be resilience to move pellet contracts to price using 65% Fe fines indexes from IODEX, on the expectation the spread would rise, he added.
Lower overall consumption anticipated during winter operating cuts to steel mill operations led to weaker iron ore import volumes in October and November. The stringency of operating cuts directed by Beijing and sharply lower steel margins than in early-to-mid-2018 may help determine demand for high grade iron ores, and changes to burden blends in China.
There is some preference to taking advantage of lower pricing in high grades to cut overall costs in the blend, provided there is less pressure on boosting utilization rates. This trend may be supported should steel capacity cuts in northern China be limited through the winter.
Lower alumina grades from Australia have clawed back discounts over several months.
Lower iron content low alumina fines have increased spot pricing relativity to IODEX, with the spread just exceeding 3% below IODEX on a dmtu basis this week, from an average of around minus 4% in December.
The lower grade fines market may see supply affected, after Rio Tinto declared force majeure to some contract buyers of 57% Fe Robe Valley fines after fire on January 10 damaged sections of Cape Lambert port's iron ore export terminal in Western Australia. Rio Tinto's estimated production capacity for Robe Valley fines and lump is 33 million mt/year.
Australian miner Fortescue Metals Group was reported to have narrowed term contract discount for its 56.7% Fe Super Special fines and 58.3% Fe Fortescue Blend fines loading in February from the month before.
The term contractual discount for Fortescue's 56.7% Fe SSF fell to 33% against Platts IODEX assessmentfor February, from 37% for January, while 58.3% Fe Fortescue Blend fines will price at a 22% discount for February, from 28% for January, according to customers.
FMG Price at posting:
$4.47 Sentiment: Buy Disclosure: Held
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