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Strong iron ore lump premium converging with weaker China import pellets

Iron ore lump premiums in China have been relatively resilient during a fall in iron ore pellet premiums since the start of the fourth quarter, leading to greater price convergence into January, according to an analysis by S&P Global Platts.
A fall in Chinese domestic metallurgical coke prices, along with sintering curbs in some areas to help maintain air quality standards, may have been boosting relative interest in lump, with premiums for 62.5% Fe lump assessed at $0.36/dmt, or $22.50/dmt over IODEX 62% Fe fines on Wednesday.
Lump premiums reached a peak at the end of December and edged lower, but remain above December’s average of $0.3439/dmt, or $23.26/dmt. Pellet premiums for 64% Fe material assessed weekly for imports into China, and usually comprised of Indian origin pellets, slipped to $33.90/dmt on Wednesday, from December’s average of $40.73/dmt.
Lump requires higher fuel rates to reduce, while substituting for sintering, which uses coke breeze and other solid fuels. Lump, pellets and sinter usage ratios differ mainly by constraints at plants and associated facilities, and operating regimes.
Coke prices for 12.5% ash grade delivered in North China in December fell around 10% from November, with prices slipping further to Yuan 2,170/mt ($321/mt) on January 10, based on Platts weekly price assessment, from December’s Yuan 2,330/mt average.
With pellet premiums falling further, utilizing more lump at current import premiums may be harder to sustain, without more constraints on sintering.
Steel prices are starting to stabilize at a lower level, after mill indicative steel making margins weakened considerably in October and November.
Restocking lump at ports may require lower CFR prices as an incentive, with a trader in China saying ex-stock equivalent premiums have edged lower.
Source: Platts
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