Discounts are narrowing for lower-priced 62pc mainstream iron ore fines imported to China as shrinking profit margins force steel mills to shift their focus to controlling costs.
Floating basis seaborne discounts for BHP's Mac fines (MACF) and Jimblebar fines (JMBF) began to narrow in early November as steel price declines accelerated, squeezing margins. Prices have been supported by increased buying interest for low- and medium-grade ores at ports, a north China trader said.
"Mills' margins have been shrinking as steel prices come down while iron ore prices go up. Mills should like to use more MACF, JMBF and SSF to control costs," the trader said.
The trading range for the 62pc fines segment widened to around a $15-18/dry metric tonne (dmt) spread across brands, with low-alumina 63pc BRBF pricing the highest of the group at a premium to index, while MACF and JMBF sell at discounts.
December-indexed cargoes of MACF have been offered at floating discounts of $2.50/dmt and JMBF cargoes have been offered at a floating discount of $8.50/dmt this week. Tradeable levels are at around a floating discount of $2.30-3/dmt for MACF and $8.30-8.50/dmt for JMBF, market participants said.
"Jimblebar fines saw increased enquiries recently, shoring up its prices," a northeast China mill trader said. A cargo of Jimblebar fines sold at a $7.50/dmt discount last week, narrower than in previous trades, he said.
Traders that are using portside trades to gauge the differentials calculate wider discounts.
MACF traded at Yn550/wet metric tonne (wmt) at Tangshan yesterday, a Yn25/wmt or $3.60/dmt equivalent discount to PB fines, which traded at Yn575/wmt at the port. JMBF traded at Yn506/wmt at the port yesterday, a discount of Yn69/wmt or $9.95/dmt to PB fines. "More mills showed interest in JMBF," a Hebei trader said.
MACF traded at Yn552/wmt in Shandong today, compared with PB fines at Yn575-580/wmt, which equates to a seaborne differential of $3-3.40/dmt, a Hong Kong-based trader said. In Tangshan today, MACF traded at Yn555/wmt and PB fines traded at Yn585/wmt for an equivalent differential of $4.30/dmt, he said.
"PB fines are at such high premiums we are considering buying other 60-62pc Fe brands to replace part of it. If PB fines premiums climb higher, I think more mills will choose MACF or JMBF," the Hong Kong trader said.
But discounts may not narrow by much, even with the shift in buying. Sellers have been unwilling to go much lower than offer levels, while tight spot availability for PB and Newman fines and slower iron ore demand during the winter off-season means it will be difficult to see discounts narrow further for MACF and JMBF, a Beijing trader said.
MACF has a specification of 61pc Fe, 0.09pc phosphorus, 4.7pc silica and 2.25pc alumina, while JMBF has 61pc Fe, 0.12pc phosphorus, 4.4pc silica and 3pc alumina. PB fines 62pc basis has a specification close to the Argus ICX 62pc index that is 62pc Fe, 0.10pc phosphorus, 3.75pc silica and 2.25 alumina.
Quality differentials steady
Argus fixed-price brand differentials for JMBF and MACF have held steady this month as underlying value-in-market (ViM) quality adjustments used to calculate the differentials have been flat. The ViM adjustments for Fe, silica, alumina and phosphorus are applied to the difference between the specifications of the brands to the Argus ICX 62pc index specification. The ViM adjustments value JMBF 61pc basis at a $12.03/dmt discount to the ICX, while MACF 61pc basis adjusts at a $5.25/dmt discount to the ICX. By comparison, PBF 61pc basis adjusts at a $1.30/dmt discount and BRBF at a $5.63/dmt premium to the ICX index.
The Argus seaborne brand quality adjustments differ to the floating prices to the December index, which can relate to the level of backwardation in the forward curve. PB fines on a 62pc basis, which has a 5¢/dmt ViM quality adjustment to the ICX, recently traded at a $3.75/dmt floating premium to the December index average.
