Demand shift sends China iron ore lump premiums soaring
Seaborne iron ore lump premiums have surged by 86pc in the last week, supported by strong demand as Chinese steel output stays high heading into winter and the dwindling supply of low-cost pellet alternatives.
The Argus 62pc iron ore lump premium jumped by 3¢/dry metric tonne unit (dmtu) to 13¢/dmt unit cfr Qingdao yesterday and has almost doubled from 7¢/dmtu a week earlier. The premium is the extra cost for every 1pc Fe in lump over the underlying ICX 62pc fines index. Lump was priced at $146.55/dmt on an outright basis yesterday, while the ICX was at $137/dmt cfr Qingdao.
A Newman Blend Lump (NBL) cargo traded at 14.2¢/dmtu fob basis over a January 62pc fines index on the Corex platform yesterday, accelerating the uptrend.
Chinese port inventories of Indian pellet fell to minimal levels in late November, eliminating a low-cost alternative to Brazilian pellet that makes up the bulk of China's port stocks.
Total lump stocks at six northern China ports have fallen by a third to 11mn-12mn t this week from around 18mn t in mid-November, market participants said. Chinese lump demand rises in winter when pollution restrictions limit fines sintering.
Direct-charge supply tightness is part of an overall shortage in seaborne markets caused by lower Brazilian output and tight supply of steel that is drawing more global capacity back on line.
Brazilian mining firm Vale has cut its 2020 production guidance to 300mn-305mn t. Vale's production had been on pace to exceed 400mn t before it was hit by a January 2019 fatal dam accident, heavy rains and Covid-19 delays.
Blast furnace restarts in Europe and US are diverting iron ore concentrate and pellet supply from China.
"Iron ore lump demand at portside markets has improved as it is more cost-effective now compared with pellet, pushing up lump prices since mid-November," a north China-based mill manager said. Pilbara Blend Lump (PBL) traded at Yn975/wet metric tonne (wmt) yesterday, up by about 7-8pc from Yn900-910/wmt on 16 November, he said.
Soaring flat steel prices are giving iron ore prices margin room to move higher.
But portside lump premiums have lagged seaborne prices. Portside lump premiums on a Yn/wmt basis have followed seaborne trends, but on a Yn/dmt basis have only turned positive this week.
"Traders' speculative demand pushed up seaborne lump premiums along with limited liquidity of lump cargoes in the seaborne market," a Shanghai-based trader said. Mills hold long-term contracts for PBL, limiting supply for spot sales, he said.
"There is at least a Yn100/t loss for landing an iron ore lump cargo at port now, while there is about a Yn20-30/t profit for portside lump sales using earlier import costs," a Tangshan-based mill analyst said. Portside traders usually hedge in derivatives markets to ensure margins, he added.
But some participants are not that optimistic about the outlook for lump premiums.
"Seaborne lump premiums remain much higher than portside lump premiums. I do not think it will go sky high, as the high metallurgical coke price will cap the rise, and there are relatively high stocks at China ports," an east China trader said.
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Overprotectionism harmful for EU stainless: Marcegaglia
Overprotectionism harmful for EU stainless: Marcegaglia
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UK's RJH ceases trading, merges with Amalgamet
UK's RJH ceases trading, merges with Amalgamet
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EU HRC market gears up for mill consolidation
EU HRC market gears up for mill consolidation
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US Fed cuts rate by half point, signals more: Update
US Fed cuts rate by half point, signals more: Update
Adds chairman Powell comments, economic projections. Houston, 18 September (Argus) — The US Federal Reserve cut its target interest rate by 50 basis points today, the first rate cut since 2020, with policymakers signaling they expect to make another half-point worth of cuts by the end of 2024. The Fed's Federal Open Market Committee (FOMC) lowered the federal funds rate to 4.75-5pc from the prior range of 5.25-5.5pc, which was a 23-year high. The Fed had kept the target rate unchanged since July 2023 after hiking it for more than a year in the most intense rate-tightening campaign in four decades to quash inflation, which peaked at 9.1pc in mid-2022. "The committee has gained greater confidence that inflation is moving sustainably toward 2pc, and judges that the risks to achieving its employment and inflation goals are roughly in balance," the FOMC said in its statement after the two-day meeting. "Job gains have slowed, and the unemployment rate has moved up but remains low." In their latest economic projections, the Fed board and policymakers expect the target rate range will end 2024 near a midpoint of 4.4pc compared with an end of year midpoint of 5.1pc projected in June, which implies further cuts amounting to 50 basis points by the end of 2024. Policymakers also penciled in another 100 basis points of cuts over the course of 2025. "We're recalibrating policy down over time to a more neutral level and we're moving at the pace that we think is appropriate given developments in the economy," Fed chair Jerome Powell told a press conference after the meeting. "The economy can develop in a way that will cause us to go faster or slower. The US economy is in a good place and our decision today is designed to keep it there." The Fed's economic projections see core Personal Consumption Expenditures inflation — the Fed's favorite measure of inflation — ending 2024 at a median rate of 2.6pc, down from a prior forecast of 2.8pc. Policymakers see core PCE inflation falling to a median of 2.2pc by the end of next year. The outlook for the unemployment rate for the end of 2024 climbed to 4.4pc from 4pc penciled in at the June meeting. Policymakers expect gross domestic product (GDP) growth to end 2024 at an annual 2pc, slightly down from a prior 2.1pc projection. The latest policy meeting comes as the Consumer Price Index (CPI) eased to an annual 2.5pc in August , down from 2.9pc in July, the Labor Department reported on 11 September. Inflation had ticked up to 3.5pc in March from 3.1pc in January, prompting the Fed to turn more cautious about beginning its rate cuts. US job growth has recently slowed sharply, falling to an average 116,000 in the three months through August from 211,000 for the prior three months. The jobless rate rose to 4.3pc in July, the highest in three years, before edging down to 4.2pc in August. By Bob Willis Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
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