Low grade-medium grade iron ore spreads narrow amid high iron ore prices

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Highlights

Australian low grade fines priced on medium grade curve

Contaminant sensitivity seen despite increased low grade demand

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Low grade iron ore products continued to see narrowing discounts to medium grade fines amid high levels for iron ore.

The spread between the 58% Platts iron ore index and the 62% IODEX narrowed to $13.15/dmt on Sept. 18. The spread was lowest since July 1, when it was assessed at $12.75/dmt, following a methodology change in specifications for the 58% index earlier on May 4, 2020.

Market sources pointed to current premiums for medium grade fines at high price levels as a key factor in shifting end-user procurement preferences toward lower grade cargoes to manage production costs.

The 58% index was assessed at $112.05/dmt CFR on Sept. 18 and the 62% at $125.20/dmt, respectively. The 62% Platts IODEX broke the $130/dmt barrier at $130.80/dmt on Sept. 3, an over six and half year high.

Medium grade fines supply has been increasing and with iron ore still largely supported in the near term. However, end-users with immediate demand have began buying low grade fines to lower their production costs, an international trader said. The preference would be for Australian low grade fines due to the ease of sinter feed replaceability, the source added.

Australian miner FMG sold a 85,000 mt cargo of 56.5% Fe Super Special Fines, or SSF, on Sept. 18 at a discount of 3% against the October Platts IODEX, FOB Port Hedland and on a dmtu basis, loading Oct. 11-20.

According to S&P Global Platts data, the discount was a historical low for SSF as compared to FMG’s previous monthly term contracts. The previous low was a discount of 5% last seen in late 2015 to early 2016. In comparison with last year’s high iron ore prices, where the Platts IODEX broke the $120/dmt mark, the lowest discount for SSF set on a monthly term basis was at 6% in August 2019.

Market participants pointed to the spot sale price levels as strongly indicative of discount levels for October term contracts and a stark indicator that Fe levels for low grade fines were now valued on the same curve as medium grade iron ore.

Some sources pointed to supply tightness from as another factor behind the recent rise in prices for low grade fines.

Iron ore supply tightness in India has pushed up domestic buying levels and logistical issues at Paradip port stemming from long trucking queues and vessel congestion has drastically reduced spot supply availability of low grade Indian fines for the Chinese market, several traders said.

Amid increased demand for low grade iron ore, differing market valuations among different product origins demonstrated that end-users were still sensitive with regards to contaminant levels given high levels of steel production currently.

Low alumina low grade iron ore fines from Southern Brazil had a spot market valuation of around $7-$9/dmt discount against the arrival month 62% index despite their low alumina levels.

Market sources indicated that medium grade low alumina fines like Brazilian Blend fines, or BRBF, had almost no premiums over medium grade Australian fines like Pilbara Blend fines, or PBF, and hence end-users did not find it cost efficient to utilize low grade at the expense of much higher silica levels.

Chinese end-user tolerance for silica has dropped due to high usage of domestic low alumina concentrates, which are high in silica, as well as rising coke prices, which are utilized more in the event of higher silica levels in the blast furnace, a Chinese end-user said.

Some Chinese end-users have seen some noticeable demand for very low grade products around the 50%-55% Fe range due to current high iron ore prices, another international trader said.

However, utilization of these products are very limited due to high contaminant levels and supply for these products from the Goa stockpile or Indonesia tend to be very inconsistent, the source added.

Author

Jun Kai Heng

Editor

Kshitiz Goliya

Commodity

Source: Platts

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