Chinese mill indexes Indian fines to Argus ICX
A north China steel mill signed a one-year contract to buy Indian iron ore fines indexed to the Argus ICX 62pc index that started in late 2019.
The mill will buy around 3mn t of 61-62pc Fe Indian fines at a discount to the monthly ICX average, shipped in 50 cargoes of 55,000-75,000t over 12 months. The contract was signed with a trading firm that sourced from an Indian mining firm.
The discount will be reset at intervals using the Argus Jimblebar fines 62pc basis (JMBF62) value-in-market (ViM) brand adjustment as reference.
The Argus ICX averaged $92.80/dry metric tonne (dmt) cfr Qingdao in January. The JMBF62 ViM differential averaged a $8.95/dmt discount to the ICX, or 11.4pc below the ICX at $82.21/dmt, in January.
Seaborne iron ore prices have fallen sharply in February, with the ICX at $80/dmt on 5 February and the JMBF62 index at $70.42/dmt, a discount of 12pc, or $9.58/dmt, to the ICX.
The mill's use of Argus' index
follows a trend in China's steel industry to widen the choice of iron ore indexes.
Australia's two largest iron ore producers, BHP and Rio Tinto, and China's second-largest steel producer backed the use of new iron ore pricing mechanisms, including baskets and brand indexes, at the industry's largest annual gathering last year in Qingdao, China.
BHP, the producer of JMBF, said that it was reviewing the use of brand indexes in contracts.
Chinese steel mills typically use Indian fines to reduce the cost for the lower price to compare with mainstream Australian or Brazilian fines, and they will use more when mills' margins are low.
Indian fines had been most often offered at fixed price in seaborne trade, but in recent years the fines have been linked to 62pc indexes.
Prior to this contract indexed to the Argus ICX, an Indian pellet long-term contract was linked to Argus pellet indexes. A Hebei steel mill in October signed a contract to buy 600,000t of Indian pellet linked to Argus pellet indices.
That contract uses the average of Argus pellet indexes, 64pc Fe 2pc alumina pellet or 64pc Fe 3pc alumina pellet, both on a cfr Qingdao basis minus a discount.
Increased interest in Indian pellet bolstered Indian exports to China in 2019. Total 2019 iron ore exports are estimated at 21-23mn t, driven by an increase in iron ore prices and tight seaborne supply.
The ICX averaged $93.42/dmt cfr Qingdao in 2019, up from $69.38/dmt in 2018.
The expiration of mining leases in India in March may reduce seaborne supply, but India has relaxed rules to limit disruption. One estimate puts the net loss of exports from India at 7mn t in 2020. Market participants expect India's exports to China to remain higher than 15mn t this year.
Indian fines typically have higher levels of alumina of 2.5-5pc and more of 3-4pc, so Chinese steel mills are blending them with grades with lower alumina and higher Fe such as 65pc Fe IOCJ fines or domestic concentrate. Indian fines are usually around 57pc Fe, but can go as low as 54pc Fe and as high as 61-62pc, as in this contract.
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