Iron ore blast furnace pellet premiums rose further in March as some steelmakers were said to have agreed quarterly pricing for Q1 around the low $40s/dry mt, and leave open the opportunity to renegotiate for lower pricing later this year.
Pellet premiums applied for March were based on $41/dmt, up from $40/dmt assessed for February and $38/dmt in January. However, a drop in benchmark iron ore fines over the last month cut overall prices.
The Platts assessment for monthly provisional contract settlement prices fell to 226.68 cents dry mt unit FOB Tubarao normalized to 65% Fe pellets in March, from February's 232.82 cents.
Seaborne iron ore fines prices into China decreased further over last month, reducing netback prices on an FOB Brazil basis to $99.742/dmt for IODEX as the average for February, down from $104.554/dmt in January.
TALK OF $45
A European pellet buyer said he was aware premiums as high as $45/dmt had been agreed for Q1, but yearly pricing was lower. He had finalized annual pricing prior to the end of 2013 and had captured lower premiums, under the $38/dmt for 2014 agreed between northeast Asian steelmakers and Vale.
Another buyer at a larger steel producer said: "I would be surprised that anyone was paying $45/dmt" for shipments in Q1. Lump ore and spot pellet prices in China fell last month, indicating weakening demand.
Platts weekly spot lump ore assessment for imports into China was assessed at $0.22/dmt unit on February 26, and for the month averaged at $0.2338/dmtu, down from $0.27/dmtu for January. He acknowledged pellet premiums were supported over Q1 from a very tight market up to December. Conditions for shipping raw materials generally had since eased and prices will fall in Q2 followed by bigger decreases as Vale and Samarco's new plants increase supply, he said.
Buyers were targeting a price below $40/dmt for Q2.
One buyer in February said anything between $30-40/dmt was his price expectation for the subsequent quarter.
Another source said buyers on quarterly or monthly contracts would negotiate, with bids around the mid $30s right now.
Supplies were still tight ahead of new plants in Brazil starting up later in Q2. Vale said last month there were no plans for the Tubarao I and II units, alongside its Sao Luis plant, to restart after they were idled in late 2012.
The new Tubarao VIII plant will take some time to ramp up, and the proportions of blast furnace pellets or direct reduction iron pellets that it will produce are said to be tailored to prevailing market demands.
A steelmaker relying on BF pellets shrugged off the potential of more DRI supply from new Brazilian capacity, rather than material charged directly with coke and sintered ore, reducing the scope of a supply increase buyers are hoping for.
A senior purchasing executive said overall global pellet supply was likely to be capable of naturally adapting to allow supplies and production to adjust for both markets.
Vale said last week it expects iron ore pellet premiums to remain strong as demand for high-grade imported ores was boosted to improve efficiency around steel works in order to cut pollution in China.
"Premiums on lumps and pellets spiked in the end of 2013 and will probably remain elevated during 2014," Vale said in a February 26 earnings statement.
Canada-based Cliffs Natural Resources last month said it had decided to indefinitely extend the closure of the Pointe Noire pellet plant, already shut since June, and idle the associated Wabush iron ore mine over the next two months due to market conditions.
The Platts assessed pellet price takes into account iron ore fines prices on a monthly average netback to Brazil for the previous month as its pricing basis. The quality is adjusted to 65% Fe by adding a multiple of the 1% Fe differential monthly average, also for the previous month.
The 1% Fe differential between 60-63.5% Fe grades was steady at $2.20/dmt over February.
European mills reached quarterly settlements with Vale for pellet premiums of around $36/dmt for Q3 2013 and $37/dmt for Q4. Premiums had been lower since 2011, when a $42/dmt pellet premium was seen.
