Brazil's Vale has settled its July-September blast furnace (BF) and direct-reduction (DR) pellet premiums at higher levels, probably owing to a combination of near-term tightness in seaborne supply and some catching up on the producer's part after it settled second-quarter premiums in the early days of the Russia-Ukraine conflict.
Vale's third-quarter BF pellet premium was concluded at $88/dry metric tonne (dmt) over a 65pc index, up by $27.40/dmt or 45.2pc from the previous quarter. The premium is up by 42pc on the year. The DR pellet premium settled at $95/dmt over a 65pc index, up by $29.20/dmt or 44.4pc from the current quarter and 35.7pc higher than the same period a year ago.
Vale is not alone in having secured substantially higher pellet premiums for the third quarter. Merchant iron ore pelletiser Bahrain Steel is also understood to have secured a similar premium for its third-quarter pellets. The company, with 12mn t/yr of pellet capacity, takes a large share of its iron ore fines and concentrates from Brazil, as well as Canada, Chile and Sweden.
The exit of Indian iron ore pellets from the market with the imposition of heavy export tariffs late last month was immediately cited as one reason for the higher premiums. "The pellet premiums have settled higher than the market's expectation, although an increase was expected after the Indian government imposed a 45pc export duty on pellets," an international trader said. "Indian pellet producers, especially those with high Fe and low-alumina products, were seeking buyers outside China even before the 22 May export duty imposition, as Chinese demand was poor on low mill margins," he added.
India exported 10.7mn t of iron ore pellets in 2021, with China accounting for the bulk of the sales.
A cargo of Godavari pellet with 65.5pc Fe and 1pc alumina traded at $188/dmt fob on 16 May, destined for Europe. Another KIOCL pellet with 63pc Fe and 2pc alumina was awarded through a tender at $145/dmt fob on 19 May and sold to a buyer in the Middle East. "It is unclear if the two deals went through or were cancelled following the tax announcement," another international trader said. "The 45pc export duty means there will be zero exports of pellets from India as the duty is too high and we don't think either side can absorb it," he added. Other traders in the Atlantic region reported Indian pellet offers and shipments being withdrawn from the market the day after the export duty was imposed.
"The breaks on Indian pellet exports may be the main driver behind the higher pellet premium settlements for the third quarter," a Shanghai-based trader said. "At the moment, the Chinese market can only accept Atlantic pellets at a premium below $40/dmt basis the 65pc Fe index," he added.
"The sale of Indian pellet at the Chinese portside market has been swift in recent days but mills still prefer the cheaper domestic pellets," a Hebei-based steel mill manager said. "Concentrate prices are also supported because of their pelletising use," he added.
The Argus63pc Fe, 3.5pc alumina pellet index stood at $152.50/dmt cfr Qingdao on 31 May, up by $2.50/dmt from the previous week. The 63pc Fe, 2pc alumina index rose by $2.50/dmt to $161.50/dmt in the same period.
Wider supply tensions
While Ukrainian pellets continue to reach Europe by rail, and to some extent Russian pellets despite tightening import restrictions, supply uncertainty clouds the outlook for Black Sea iron ore pellets.
The settlement of Vale's second-quarter pellet premiums shortly after the start of the Russia-Ukraine conflict in late February had also meant that Vale had some catching up to do in terms of second-quarter pellet premiums, market participants said.
Vale-BHP Brazilian joint venture Samarco settled its second-quarter BF pellet premium at around $67/dmt over a 65pc index, $6.40/dmt higher than Vale's second-quarter settlement in late March, while the DR pellet premium settled at $70-72/dmt over a 65pc index, $4.20-6.20/dmt higher than Vale's premium.
Vale's difficulties with pellet feed availability are likely to have also pushed up its pellet premiums and the need to maximise its DR pellet sales, one trader in Europe said. The producer's pellet output stood at 6.9mn t in January-March, up by just over 10pc on the year and 23.7pc down on the quarter. Production was affected by lower pellet feed availability at its Sao Luis operations and longer-than-expected maintenance at the Tubarao 3 plant.
