Indian pellet prices rise in China

Prices of Indian iron ore pellet have increased in the Chinese market, with global pellet supply falling by more than 10pc following a production suspension at Brazilian iron ore producer Vale's pelletising facilities.

Vale has announced a gradual suspension of its 11mn t/yr pellet-making facility in Minas Gerais province as it works on a one- to three-year plan of permanently shutting down 10 tailings dams.

The government has also shut down Vale's wastewater treatment plant at Tubarao port, forcing the company to suspend some pellet-making operations. The Tubarao suspension has affected 15mn t/yr of pellet-making capacity, according to a Morgan Stanley analyst report.

Most spot seaborne and portside pellet sold in the Chinese market is of Indian origin. Indian pellet prices reached multi-year highs of $160/dry metric tonne (dmt) in September before slumping to $110/dmt cfr in January on reduced demand for high-grade ores because of lower mill profit margins in China since November.

Indian pellet prices have been rising since the Vale mine accident on 25 January. A cargo of 64pc Fe Indian pellet with 3pc alumina was sold at $119/dmt cfr China on 1 February, with a similar cargo sold at $129/dmt last week. Offers for similar high-alumina 64pc Fe Indian pellet cargoes with near-month delivery were at $132-136/dmt on Monday.

China imported 2.65mn t of iron ore pellet from Brazil last year, mostly under term contracts. India exported 6.4mn t of pellet, most of which were spot sales.

Seaborne pellet prices have reacted on sentiment. Any slowdown in actual imported pellet arrivals from Vale may not be apparent over the next several days, said the manager of a south China-based mill.

Argus is so far not aware of Vale declaring force majeure on any pellet shipments into China.

Domestic pellet prices in China are currently trading at higher prices compared with imported Indian pellet, which should provide more upside for imported pellet in the near term, said a ferrous analyst. The tradeable price for Chinese domestic pellet in Shandong was 1,090 yuan/t ($160) yesterday.

But as mills are operating with thin profit margins, there may not be a sharp spike in pellet demand as saving costs remains a focus rather than increasing steel output. Steel prices increased sharply on Monday, mostly in reaction to higher iron ore prices, but trading volumes remained low.

Mills may look to increase scrap burden in the converter to displace higher-priced ores such as pellet in the blast furnace burden if prices rise too much, although scrap prices have also increased by Yn80-150/t since the Vale accident, said the manager of a Hebei-based mill.