Atlantic iron ore pellets: 1Q premiums fall

A weak demand environment in the seaborne Atlantic and Asia-Pacific markets is driving down iron ore pellet premiums for the upcoming quarter.

Brazilian iron ore mining firm Vale has "concluded its pellet premium definition process" for the first quarter of 2023 at $52/dry metric tonne (dmt) to a 65pc index, down $23.60/dmt from the fourth quarter for direct-reduction pellets. The premium for blast furnace pellets was indicated by the company at $44/dmt to a 65pc index, down $24/dmt on the quarter.

Market sentiment among European mills is bearish at least until the second quarter of next year, with more output cuts anticipated in the face of continued weakness in steel demand. While coking coal consumption has remained largely steady supported by higher coke gas production, appetite for iron ore has been declining. Soft demand in Europe has likely encouraged the emergence of competitively priced Canadian and Swedish spot pellet cargoes in the Chinese market earlier this month, with premiums of about $20-25/dmt to a 65pc index, depending on Fe content. The Argus daily northwest Europe hot-rolled coil index is assessed at €618.75/t today, down from €732.75/t on 31 August when the indications for fourth-quarter pellet premiums were released.

Weakness has also extended to Asian mills in the fourth quarter and market participants expect that north Asian mills will not be in a rush to settle their pellet premiums or seek out discounts. "We think the pellet premiums are too high and we will ask for discounts of $5-7/dmt for Carajas pellets," one Asian mill source said. "But I don't think it will be accepted easily," the source added.

Chinese seaborne demand has remained generally weak despite some recovery in sentiment this week on the back of stimulus policy support for China's real estate sector. Steel inventory levels are still not falling sufficiently owing to slow destocking, with most Chinese cities facing temporary Covid quarantine restrictions.

The removal of India's 45pc export duty on iron ore pellets last weekend is also expected to add to supply availability in the market and weigh on pellet prices. In response to the lifting of export duties, India's state-controlled KIOCL restarted its 3.5mn t/yr iron ore pellet plant in Mangalore on Thursday after suspending operations on 7 June November following the withdrawal of export duties on pellets last week.