Seaborne prices of Indian pellet cargoes hit all-time highs this week in the Chinese market amid a squeeze in global supplies and environmental restrictions in China.
Two fire disruptions at Swedish pellet producer LKAB's mining operations and its railway transport system this month led to delays in deliveries and squeezed global pellet supplies. There has been market discussions about increased demand for Indian pellet from Japan, South Korea and European buyers but there is no information on recent deals. Indian pellet are less preferred in these developed country markets because of quality issues. Most Indian pellet is sold into the Chinese spot market.
India's total pellet exports in the April-June quarter, the latest period for which official data is available, was 1.75mn t, of which 1.12mn t was exported to China.Among other major buyers, the UK bought 185,520t and South Korea bought 161,610t. Volumes may increase in the July-September quarter as Indian producers will be eager to cash in on the sudden surge in demand. Jindal Steel, BRPL, KIOCL and Essar Steel are among the major pellet exporters from India.
Restrictions on shaft furnaces that produce pellet from domestic concentrate in Tangshan city in north China to reduce emissions have added to demand for imported pellet. Shortage of domestic concentrate has anyway been supportive for pellet prices for most of the year. Iron ore production in China has been down by around 39pc against a year earlier during January-June.
A cargo of 64pc Indian pellet with 3pc alumina content was possibly sold at $146/dry metric tonne (dmt) this week. A cargo of 50,000t KIOCL pellet cargo might have sold at $136.50/dmt fob east coast India, which translates to a cfr price of around $148/dmt in China. A deal for 64pc Indian pellet with lower crushing strength was possibly done at $145/dmt. Pellet with lower crushing strength is less preferred because of its easier breakability in transportation and the steel production process.
An offer for Indian pellet with near-month delivery was at $155/dmt. A cargo of KIOCL pellet shipment with late August loading dates was at $158/dmt.
The previous high for Indian pellet prices in the Chinese market had been around $130/dmt in December 2017. Prices have been in a $110-120/dmt range this year.
The higher Indian pellet prices are unlikely to be sustained for long, as the LKAB disruption is only for a short period. But the pellet market will see support in the Chinese market because of environmental restrictions on pellet production, said a Singapore-based trader.
The repeatable premium of Indian pellet in the Chinese market is currently around $76-77/dmt to the 62pc index, a high level, said a Beijing-based trader. Demand is firm for now, he added.
