A surge in metallurgical coke prices and weaker iron ore demand with steel production cuts in China have caused a steep drop in seaborne iron ore lump premiums.
The Argus 62pc iron ore lump premium was at 14.5¢/dry metric tonne unit (dmtu) yesterday, down from 72¢/dmtu on 1 July, the highest since 2013 based on Argus records. The premium is the extra cost for every 1pc Fe in lump over the underlying ICX 62pc cfr China fines index.
The domestic metallurgical coke price for 62pc CSR material was 3,550-3,600 yuan/t, following a sixth round of price rises by Yn120/t this week. Coke prices have risen by Yn720/t since the end of July with tighter supplies of metallurgical coal in China. Steel mills are refraining from lump use to lower their coke consumption, as lump cargoes require more coke use in the blast furnace for efficient operations. Some mills have started selling their long-term contract lump cargoes in the past 2-3 weeks. "The high metallurgical coke price has reduced the feedstock ratio of lump and high-silica ores," an east China steel mill manager said.
Premiums for lump cargoes were wiped out in early August with Newman Blend Lump (NBL) offered at a discount of $1/dmt on a 62pc index basis in the secondary market. The brand traded at a discount of $2.50/dmt on a 62pc index basis on 13 August. A cargo of NBL was offered at a lump premium of 14¢/dmtu yesterday on the Globalore trading platform, the lowest platform offer in eight months. Floating discounts for lumps, which are linked to the monthly lump premium index average, have deepened following the coke price hike. A cargo of NBL traded at a discount of $4/dmt, while Pilbara Blend Lump (PBL) traded at a discount of $3/dmt on a 62pc index basis, in combination with fines cargoes this week. Spot lump cargoes are traded either with a fixed lump premium applied to an underlying 62pc fines index or with a floating premium or discount component applied on top of the monthly lump premium index average basis of the underlying 62pc fines index.
Portside premiums dip
Portside lump premiums have also come down since July, although at a slower pace that the fall in the seaborne market. PBL traded at Yn1,320/ wet metric tonnes (wmt) at Rizhao port yesterday. The spread between Pilbara Blend Fines and PB lump narrowed to Yn310/wmt, down by 29pc from Yn435/wmt at the end of July, when mainstream lump inventories at six north China ports increased by 46pc during the same period between the end of July until now.
"Lump liquidity is low at the ports, as sellers with high-cost cargoes on hand are reluctant to offer lower. Portside lump premiums stand at 50-55¢/dmtu but have room for further declines," a Singapore-based trader said. "Speculative demand from traders is low on poor liquidity," he added.
"Lump premiums may lose further if metallurgical coke prices keep rising," a Shanghai-based trader said.
Demand for high-silica ores has also retreated because of the higher coke price. While some amount of silica is required for optimum slag formation in a blast furnace, an increased amount has cost implications as it requires higher coke use.
Brazilian mining firm CSN's tender for NPSP lump, with 8pc silica, settled at a discount of $30/dmt on a 62pc index basis on 16 August. Fellow Brazilian producer Vale's tender for Sinter Feed High Silica Tubarao with 13.79pc silica settled at a 40pc discount to a 62pc index on 20 August, wider than the discount for material with 14.75pc silica settled at 35pc discount two days earlier. "It is hard to sell high-silica ores despite their lower prices," a north China steel mill manager said.
