Direct reduction or DR pellet premiums are rising and the market may have to accept historic differentials with blast furnace pellet premiums going into 2017 in order to secure supplies as availability tightens, iron ore pellet producers and traders said this week.
DR pellet buyers and other regional steel market executives gathered in Dubai for an industry event said suppliers of pellets and iron ore concentrate were looking to finalize pricing terms after progress was said to have been made by Brazil's Vale.
Vale sold blast furnace pellets at a premium of $45/dry mt for 2017 contracts, according to the company, and may have agreed DR premiums in some cases at over $50/dmt.
For the blast furnace or BF grade, settlements for 2017 were said to have happened first in Northeast Asia, with market sources providing mixed reports on the progress being made in Europe, while the Middle East may be facing less consolidated DR grade premium offers on differing contract and pricing structures, the market sources said.
Some producers suggested DR pellet premium offers may have to exceed $55/dmt, as the DR pellet market is urgently seeking seaborne supplies and unfulfilled demand is stretching availability from Brazil, Oman, Canada, Sweden and Russia, as well as a pellet plant in Bahrain taking feedstock.
DRI indicative costs against currently supportive regional steel and scrap trends may be working in favor of the pellet suppliers.
Russian producers Metalloinvest and Severstal are supplying higher Fe pellets to DR customers, while balancing needs of blast furnace pellet customers and HBI and steel requirements internally.
Sweden's LKAB is facing demands for more pellets in various segments, and as output from Swedish mines is determined by long-term contract structures, this limits its ability to easily switch volumes to the coveted DR grade with higher Fe and low silica.
LKAB has a new pellet customer in Voestalpine USA, whose Texas plant inauguration earlier this year will lead to more Swedish volumes moving stateside next year.
While there was some market talk of pellet premiums being settled at $45-$50/dmt for DR grade, a historic ratio of $10/dmt above blast furnace grade, or what some miners say is a longer term 7.5% higher total price than for BF pellet prices, is leading to DR premiums to theoretically test the $55/dmt band.
Platts DR pellet premiums under long-term contracts for December were assessed at $46/dmt, up $1/dmt from November.
DEMAND PEAKS FOR BF PELLETS
Spot demand for BF grade pellets to blend with the top quality low silica and high iron content and CCS specified DR pellets is at a peak. Indian, Russian and non DR grades from the main Atlantic seaborne producers were heard being sought out.
Spot BF grade pellet prices for December loading cargoes were said to be seeing premiums of around $40/dmt and possibly a few dollars higher.
Several pricing structures, related to how to use the iron ore fines reference in China and account for freight back to the incoterm in the spot sale, were making the premium less transparent and easily interchangeable among these spot trades.
European buyers had sought premiums for 2017 contracts close to 2016 levels, and found their negotiation position weakened as the end of the year neared, with some forced to commit to less annual volume, and this may help maintain spot interest, a supplier source said.