Indian iron ore pellet sales to China fall

India's iron ore pellet shipments to China have fallen by 35pc in this year's first quarter, as Chinese steel mills are using more domestic supplies to save costs.

India is the largest iron ore pellet exporter to China and makes up most of China's spot pellet market. Other major suppliers, such as Brazil and Ukraine, largely supply pellet to Chinese mills through term contracts.

China received 1.84mn t of Indian pellet during January-March compared with 2.84mn t a year earlier. India's pellet exports were a small portion of China's supplies before 2016, but the shutdown of Brazilian producer Vale's Samarco mine in November 2015 cut off a key supply source. Chinese buyers have turned to India's 64pc Fe pellet to meet the shortfall. Domestic concentrate output in China has also fallen over the past three years, as mines closed because of to economic unviability and environmental restrictions.

Offer prices of 64pc Indian pellet with May delivery are currently around $113-114/dry metric tonne (dmt), which is higher than offers of $107-110/dmt in late March but lower than $119/dmt in early March. Prices had touched an all-time high of around $127/dmt for December 2017 delivery cargoes.

There have not been many deals for Indian pellet over the past few weeks, with most still mills unwilling to pay $114/dmt for such cargoes. Domestic pellet prices are much cheaper while mills are also stepping up purchases of imported pellet feed concentrate, said a Shanghai-based trader. Jindal Steel and Essar Steel are the largest producers and exporters of pellet from India, while some of the smaller exporters including BRPL, Rashmi and Arya.

BRPL offered a late April loading pellet cargo at $43/dmt premium to the May 62pc index but few bids emerged for the cargo. A Hebei-based mill saw a 64pc pellet offer from Jindal Steel with late April loading dates at $112/dmt, which the mill considered was a high price.

Demand for imported pellet in the yuan-denominated portside market was more in Shandong than Hebei province where domestic supplies are ample. A large Ukraine-based mining company saw interest in offering more pellet spot cargoes in the Chinese market on a floating basis in the short term.

Environmental restrictions could offer support to pellet sales and demand this year. Pellets and high-grade fines such as IOCJ are expected to see firmer demand and command a premium, as production efficiency and stricter environmental policies are emphasised in China, Vale said yesterday.

Iron ore fines sintering is often the target of restrictions in China in emission-reduction drives. China's ministry of environment is drawing up a three-year air pollution control plan in key regions such as Hebei and the Yangtze river delta, which are key steel producing regions. Environmental inspections were launched this week week in Jiangsu province, the second-largest steel producing province after Hebei, to control pollution along the Yangtze river. Some mills in the province have been asked to restrict iron ore sintering, said market participants. South China's Guangdong province has announced more stringent emissions rules for steel mills by 1 December. Restrictions on iron ore sintering in Tangshan city in the second week of April lifted imported pellet feed concentrate prices to multi-month highs.