Iron ore lump premiums have widened on increased demand, tighter availability and firmer margins for spot sales.
The Argus 62pc Fe iron ore lump premium has doubled since early January, breaking above 40¢/dry metric tonne unit (dmtu) and hitting 47.4¢/dmtu on 14 March, the highest level since last July. The premium is for every 1pc Fe unit in lump above the underlying 62pc fines index.
The lump premium at 46.4¢/dmtu on 16 March equated to an outright price of $175.25/dmt for lump, based on the underlying ICX 62pc fines index at $146.50/dmt cfr Qingdao.
Lumps transactions and bids were aggressive, shoring up premiums. A few cargoes of Newman Blend Lump (NBL) with April laycans traded at lump premiums of 45¢/dmtu and 47.5¢/dmtu fob on 10 March and 14 March respectively. A bid for Pilbara Blend Lump (PBL) with early April laycan this week was at 47.5¢/dmt on a cfr basis.
Non-mainstream lumps also gained more popularity. An 80,000t cargo of RTX-Lump with a 11-20 April laycan traded at a 6.8pc discount to the April 62pc index through a tender sale on 10 March.
Stricter limits on sintering during the Beijing Winter Olympics and Paralympics benefited direct-charge ores and made it difficult for lump prices to fall. "Sintering capacity haven't fully recovered yet despite the curbs were lifted. Demand on lumps remained solid," a Beijing trader said.
Portside lump inventories remained low, further enhancing lump premiums. PBL and NBL stocks in Shandong and Tangshan hovered at low levels since early March.
"We noticed that as of now this year, Rio Tinto's total shipments for PBL were lower than a year earlier," a north China mill buyer said. "The spread between Pilbara Blend Fines and PBL in Shandong largely widened from Yn335/wmt to Yn390/wmt in the recent two weeks." Rio Tinto's PBL shipments were down by 18pc from a year earlier to 51.5mn t last year, while Robe Valley lump shipments dropped by 14pc to 4mn t. SP10 lump shipments last year were 16.1mn t, up by 315pc.
The profitable landing margins encouraged more trading firms to buy lump from seaborne market and sell at ports. "Most mainstream brands were at negative margins while NBL and PBL have decent profits separately at Yn48/t and Yn69/t in Shandong, which attracted traders to take positions on lumps," a Hebei mill buyer said.
Pellets, as the direct competitor of lump, also provided support. The conflict between Russia and Ukraine has resulted in tighter supplies of pellets. European buyers have shifted their purchases from Ukraine to the Indian market. The reduced pellet supplies to China further boosted lump prices.
Bearish outlook
Lump prices could be near a peak if the coming rainy season slows demand and steel mills' margins get further squeezed, mill buyers and traders said.
"Mills usually shift blends away from lump after the heating season ends and increase sintering ratio, leading to obvious declines in lump demand," a north China mill buyer said.
The increase in metallurgical coke prices, which rose by 800 yuan/t ($126/t) from late February, is adding more pressure on lump demand. "Steel mills are seeking out lower cost options. We have decreased lump ratio from 6-8pc to the current 2-3pc," a Hebei mill buyer said. Some Shandong mills also lowered lump blending below 5pc and increased sintering fines and domestic pellet ratios, another mill buyer added.
Increased Covid-19 lockdowns in China have slowed overall demand on iron ore and steel. "Steel sales were dampened with Covid-19 spreading in China. Mills lack motivation to produce more pig iron by using lumps or high-grade fines," a south China mill buyer said.
