Seaborne iron ore pellet premiums bound for China fell as demand continued to show no signs of improvement, with steelmakers shunning high-quality feedstock in a bid to lower production costs in a loss-making environment.
Platts assessed the spot blast furnace pellet premium Wednesday at $11.50/dmt CFR North China over the 62% Fe Iron Ore Index, or IODEX, assessments, and after adjustment to 65%-Fe basis, fell $0.75/dmt week on week.
The assessed pellet premium was normalized to typical specifications of 65% iron, 0.35% alumina, 5% silica, 0.02% phosphorus and 0.003% sulfur.
Physical properties specified by the assessment are 250 cold crushing strength (CCS), and a maximum sizing of 2.5% under 5 millimeters.
"Pellet imports are not proving popular now," a steelmaker based in northern China said. "There is a lot more reluctance involved in purchasing high-quality material because mills want to push down their production costs as much as possible."
"Pellet is significantly more expensive than lump now so if mills really need high-grade material, they would rather buy lump instead."
Lump and pellet are considered relative mutual substitutes as feedstock that can directly be applied to blast furnaces in the process of steelmaking.
Apart from ample supply from miners, a steelmaker in eastern China said many mills had their own pelletization plants and would also sell some of the material in the spot market. Pellet is processed from concentrate material through the process of pelletization.
"But there are only a very limited number of end-users who would use pellet in their blast furnaces now, and volume of demand is quite small for each user," the steelmaker said.
Another procurement source said pellet stocks at Chinese ports would probably remain sufficient for steelmakers' needs for the next six months.
Fresh shipments were also continuing to arrive at the ports every month, meaning market participants were comfortable that they could obtain material if needed.
Despite initial concerns from some industry sources that Samarco's tailings dam collapse in its Minas Gerais operations in Brazil would cut off pellet supply from there, there appeared to be no immediate impact on spot premiums due to the lower supply.
Market participants said that despite this reduced supply and uncertainty surrounding when Samarco pellet material would resume exports, Chinese demand was so lackluster that premiums continued to head south.
A source from an international trading house said they had a half-Capesize pellet cargo that had been stored at a local Chinese port for around three months already, but they had yet to find interested buyers for the material.
"There is simply no demand and bidding inquiries are very thin," the source said.
