A rally in Indian domestic iron ore pellet prices has sharply reduced the country's exports to China, sending port stocks dwindling and shifting Chinese mills over to higher-priced Brazilian pellet.
Indian domestic pellet prices have increased by 80-90pc to around 11,000 rupees/t ($148/t) this week from around Rs5,500-Rs6,000 in July, market participants said. This is in line with the Argus 64pc Fe 3pc and 2pc alumina Indian pellet indexes at $147/dmt and $153/dmt cfr China this week, up by 46pc and 48pc, respectively, from year lows in early May.
A rebound in Indian steel demand and output has driven the price increases for pellet. Indian crude steel output rebounded from a bottom in April and then regained 2019 levels in October with the end of the rainy season and most Covid-19 lockdowns ahead of the festive season.
Pellet makers in India have warned about tighter domestic iron ore supply, but most of India's iron ore exports are lower-grade fines that are not favoured by its steelmakers and are stockpiled at mines.
November pellet arrivals to China fell to around 500,000t, down from a peak of about 1.6mn t/month earlier this year, an east China trader said.
Indian pellet stocks at six north China ports have fallen from a 2020 high of around 2.7mn t in August to below 1mn t in late October and less than 40,000t this week, market participants said. Ukrainian pellet supply has also dried up with less than 80,000t left at north China ports this week.
Chinese port stocks of all pellet types have fallen below 8mn t this week from a 2020 high of 11mn t in August, participants said.
"Chinese steel mills prefer to use Indian and Ukrainian pellet rather than Brazilian pellet, as the Brazilian grade is more expensive than Indian and Ukrainian pellet, with a price gap of around 70 yuan/wet metric tonne (wmt) ($11/wmt) between Brazilian and 3pc alumina Indian pellet this week," a Hebei-based steel mill manager said.
"But with these two pellets gradually drying up, Brazilian pellet has been making up the most portside inventories now and mills have to buy some Brazilian pellet as well," he said.
Indian pellet traded at Yn1,138/wmt in portside markets this week, at a seaborne equivalent of $153/dmt, up from Yn960/wmt in early August and Yn915/wmt in early May.
Chinese mills favour pellet over lump because it uses less metallurgical coke, but the price increases for pellet have pushed mills to buy concentrate to pelletise themselves or shift back towards lump.
Most of China's spot Ukrainian pellet imports are supplied from Ukraine's vertically integrated steel and mining group Metinvest.
Swiss-Ukrainian iron ore producer Ferrexpo sells into China mostly under long-term contracts. A cargo of 90,000t Ferrexpo Ukrainian Premium Pellet (FPP) 65pc Fe with 18-27 December laycan traded at a premium of $25/dmt to a January 65pc index on the Globalore platform on 19 November, the first time it traded since debuting on the platform in May.
