The seaborne iron ore lump premium hit a record high Thursday, as tight spot supply and stricter environmental control in China ushered in stronger demand from spot buyers.
S&P Global Platts assessed the spot lump premium at $0.3260/dry mt unit, up $0.0540/dmtu from Wednesday to the highest since Platts started the assessment on May 15, 2013.
The last higher lump premium was assessed on January 21, 2015, when it stood at $0.3250/dmtu CFR China. The lowest point was on April 12 2017 when it was at $0.0155/dmtu.
The new high was in line with increasing liquidity in lump premium swap contracts cleared in the Singapore Exchange. August trade was 2.445 million mt on SGX's lump premium contract, which settles against Platts spot lump premium assessment (IOCLP00), up 321% month on month.
A 10,000 mt of SGX Platts Iron Ore CFR China Lump Premium Index Futures for September cleared at $0.3000/dmtu and 10,000 mt for October cleared at $0.2800/dmtu on Thursday. The two trades implied a backwardated lump premium curve.
A mandatory sintering cut in China has boosted end-users' buying appetite, as Chinese steelmakers have to scale back on sinstering output and rely more on high grade steel feedstock such as pellet and lump to feed their furnaces.
"The Chinese mills are making very strong margins and would not want to cut down on their crude steel output due to sinstering restriction, they have to buy more lump and this inevitably pushed up the lump premium," a mill source in central China said.
Buyers were said to be jostling for lump materials amid tight supply in both the seaborne and dockside market.
"I heard there is no more lump supply at the ports at Shandong. Supply is also very tight in Tangshan," an international trader said, adding buyers have to dip deeper into their packets to pay for premium steel feedstocks.
The spread between Newman fines and lump at some northern Chinese ports was heard at around Yuan 180/wmt ($27.25/wmt) Thursday, or the equivalent of 30 cents/dmtu premium on an import parity basis.
"Lump and pellet are on fire. Port inventory for lump and pellet is very low," said the international trader. "Now mills are panicking that they cannot buy much later on...It broke through the psychological level."
"There are two opposing forces affecting lump demand, rising coke prices and the current sintering cuts. Right now, mills are prioritizing maintaining output so the need to use lump as a substitute over fines takes precedence," said a Chinese trader source.
Chinese domestic coke prices have jumped Yuan 330/mt to Yuan 2,160/mt DDP Tangshan, since the beginning of July due to strong demand and relatively tight supply, according to S&P Global Chinese weekly domestic met coke assessment.
