Iron ore spot market alumina penalties have spiked on tighter supply of low-alumina cargoes from Brazil and few alternatives to offset the shortfalls.
The Argus value-in-market (ViM) adjustment for every 1pc of Al2O3, or alumina, in mainstream 62pc iron ore fines jumped by $2.50/dry metric tonne (dmt) to $4/dmt today. The increase is driven by widening premiums for low-alumina ores in the wake of January's dam accident in Brazil that curtailed seaborne supply. Those premiums have accelerated gains in late April as the reduction in shipments and a stock drawdown begin to take hold in the physical market.
A seaborne cargo of BRBF traded today at $97.10/dmt 62pc basis on the Globalore platform, and a portside trade of 63pc Fe BRBF was concluded at 727 yuan/wet metric tonne (wmt) on the Corex platform. Vale's southern system fines — hit by mine closures after the dam accident — are blended with its northern system 65pc Fe IOCJ fines to make BRBF.
Heavy rains hit northern system logistics in March and April, reducing near-term IOCJ supply that had been expected to offset southern system losses to some extent. The 65pc index has reversed the declines in its premium to the Argus ICX 62pc seaborne index. A seaborne cargo of 65pc Fe IOCJ traded at $109.30/dmt on Corex today, at a 16.8pc premium to the ICX's $93.55/dmt.
BRBF premiums have likewise started widening, back to levels last seen in 2018. The Yn727/wmt portside Corex trade was at a 8.5pc premium to the Argus PCX portside index, and the $97.10/dmt Corex seaborne trade represented a 5.5pc premium to the ICX on an actual 63pc Fe basis for BRBF.
The higher premiums for low-alumina ores — such as IOCJ and BRBF — have pushed Chinese buyers towards other low-alumina ores, like 57pc Yandi fines (YDF), with a 1.55pc alumina content, supplied by Australian mining firm BHP Billiton. YDF 62pc traded at parity with the 62pc index in an off screen deal on 26 April, the first time the sub-60pc Fe ore has traded on a level with the 62pc index on a $/dmt unit basis.
Mills facing squeezed profit margins can use YDF to lower production costs by not paying a premium on a $/dmt unit basis for ores — as they do for IOCJ and BRBF — a mill buyer said. This dynamic has played out for all sub-60pc Fe fines, which have narrowed their discounts to the 62pc index, so they are no longer as low-cost, a Chinese trader said.
Lower supply of mining firm Rio Tinto's Robe Valley fines has also helped lift demand for YDF.
"Yandi fines have good demand because the Brazilian cargoes are offered quite high, and local mines in north China are also under restriction," a Hong Kong trader said. China's domestic ores have a low alumina content. But with IOCJ trading at Yn770-775/wmt and BRBF trading at Yn708-710/wmt, "mills have to look for other low-alumina cargoes to replace these higher-cost brands", the trader said.
