Higher pellet prices, curbs lift China iron ore lump

Seaborne lump prices were higher in September, as a sharp increase in prices of imported pellet pushed buyers to increase the lump proportion of their direct charge material in the furnace burden.

The September average of Argus-assessed 62pc seaborne lump premium was at a 34.45¢/dry metric tonne unit (dmtu) premium to the Argus ICX 62pc seaborne fines price, the widest premium so far this year. The September average is the second-widest monthly lump premium average in the history of the index, after 39.23¢/dmtu in September 2017.

Lump prices have been rising since July, as environmental restrictions on sintering and pelletising units lifted demand for direct charge material. A shortage of domestic concentrate through the year because of restrictions on open-pit mining have also led buyers to seek more overseas concentrate, lump and pellet.

Lump and pellet prices got a further boost in August when global pellet supplies were squeezed after Swedish pellet maker LKAB reported outages at its production and transportation facilities following a fatal accident and then a fire on the rail line to Narvik in Norway.

Demand for Indian pellet pushed prices to a record high of over $150/dmt in the Chinese market in August, with prices still hovering in the $150-155/dmt range.

Repeatable lump premium jumped from a 25-28¢/dmtu premium to the reference 62pc fines index in August to around 34¢/dmtu in September, as lump became more attractive as a direct charge material amid tight supply and high prices of imported pellet, said an east China-based trader.

PB lump and Newman blend lump were the popular choices among buyers. The floating premium of PB lump climbed from a slight discount to the 62pc reference lump index to around a 30-40¢/dmt premium to the 62pc lump index. Repeatable premium for Newman Blend lump is around a $1/dmt premium to the lump index, said a Singapore-based trader.

South African Kumba lump has been highly sought after, with supplies typically much lower than PB lump and Newman blend lump. "Kumba lump may be the best lump grade around. It's hard as rock and almost acts like a pellet in the blast furnace," said the executive of an iron ore mining company. A cargo of Kumba lump was sold at a $9.90/dmt premium to the 62pc lump index in early September, with the premium hovering above $9/dmt for most of September.

The degree to which lump holds its shape during haulage, which is measured by the amount of lump in a cargo that breaks down into fines, is one indicator of lump quality. Mainstream lump producers insist that the amount of fines in lump cargoes has remained fairly stable over the past few decades.

Market participants expect lump prices to remain well supported in October as more sintering and pelletising units in 28 north, east and central China cities shut down amid autumn-winter environmental restrictions.

The extent of lump use will depend on how high pellet prices are. Mills are switching between these two materials, while the average proportion of direct charge material in furnace burden for several mills is quite high at around 30pc right now, said a Shanghai-based trader.

Indian pellet prices will likely remain well supported in the near-term as buyers from Japan, South Korea and Europe look to purchase Indian cargoes while supply remains stable.

Looser autumn-winter steel output restrictions this year is bullish news for fines and lump, as mills will look to produce at peak levels with high- and medium-grade mainstream ores amid ample profits, said an east China-based trader. But lump use may be affected if dust control restrictions on construction pressure profit margins. Demand for lump and pellet may be hit if profits fall below 500 yuan/t ($73). Mills' current profit levels are at around Yn700-1,000/t.