The iron ore market is seeing a shift back to stronger premiums to ensure supply of higher grade products including fines, concentrates and pellets, on the back of supply dynamics in the Atlantic market and steel price increases led by China, according to sources in Europe and trade analysis by Platts.
The collapse of a tailings dam at Samarco's complex in Minas Gerais in November shuttered the mining operation and idled its coastal pellet plants, with resultant widespread reviews and changes to operations in the iron ore-rich southern state of Brazil.
Vale, Anglo American and smaller miners have since been facing knock-on effects.
A slowdown in planning mining around new deposits to keep up improvements to processed grades occurred, while easier to access higher quality ores run down.
Slower licensing of new mining areas and operations at concentration plants has led to quality degradation of iron ores supplied from the area in recent months, several sources said.
Vale's ability in Malaysia and at Chinese ports to blend in northern Brazil mined Carajas product shipped from Ponta da Madeira may help mitigate this trend in Asia, with Chinese demand and shipments of the Brazilian Blend (BRBF) fines rising since introduction.
The specification for BRBF has moved down from earlier Vale targets for 2016 of 63.5% Fe to 62.5% Fe, with an accompanying rise in silica. Lower usage of domestic Chinese iron ore pellets with higher silica is reducing penalties for silica content.
Southern Brazil mined products exported out of Tubarao, Itaguai and other ports recently shipped to term buyers in Europe have come with higher gangue as degradation noticeably increased since Samarco's accident, sources said.
LOWER GRADE IMPACT
Mills outside China typically buy a variety of straight products as ingredients in sinter blends, and lower Fe and higher gangue may be addressed by increasing the proportion of higher grade fines, adding concentrates and relying more on pellet and lump.
Qualities from Carajas with lower silica and higher iron content remain coveted and improving, with new projects such as N4WS starting ahead of the giant S11D mine adding better ores and helping to substitute remaining qualities.
Spot sales of Carajas has dropped, partly because buyers in China have reduced demand for high Fe ores and Vale adjusted its marketing, prioritizing blends and the supply of Carajas to term customers. Carajas has become more consistently offered at around 65% Fe.
The Platts 1% Fe mid-range differential has started to increase from a low of $0.70/dmt in January to average at $0.95/dmt in March and assessed on April 15 at $1.05/dmt.
The additional amount paid for products using Platts 65% index over IODEX 62% benchmark fines on a dmt unit basis per Fe has increased to almost 1% in March from 0.52% in January. The dmtu premium for Fe for 65% indexes over IODEX ranged between 2-8%, using monthly averages.
PREMIUM RISES
Pellet premiums have risen following lump premiums higher.
Atlantic term premiums for blast furnace grades were assessed or April at $30.50/dmt, up from $26/dmt in January as suppliers moved away from earlier lower-priced contract levels.
In China, lump and pellet premiums have increased later than seasonally expected as prices followed up the post Lunar New Year change in demand. A shift to lump and fines from domestic pellet may be taking place at mills adaptable to higher-growth segments, Platts MVS analysts said.
Back to Brazil, in Minas Gerais and beyond, changes in ore quality and availability timing that would likely impact the production process, may be pushing up costs after a run of quarterly industry cost declines fueled in part by the real's deprecation and low oil prices.
Vale was heard earlier this month to have raised term premiums in Asia for southern fines including SSFT and SSFG term cargoes to $2/dmt over an IODEX-based matrix for April-arrival cargoes, from $1.50/dmt for February and March arrival cargoes. It also shortened its premium adjustment to every month, from every two months.
Spot sales to China of SSFG were recently for 62.73% fines material, and specification were similar to earlier sales.
While Samarco's lost 30.5 million mt/year of pelletizing capacity and 32 million mt/year of concentrate output may have led to changes in market shares among other suppliers, and helping adopt new supplies to customers looking for alternatives, the indirect effect outside pellet markets threatens to reinforce reliance on high-grade supplies.
Higher recent mill utilization in China and Europe is adding to support, as steel prices recover and a destocking phase faded out.
The winter is when China's iron ore supply is tighter and demand for higher grades to combat pollution was expected to peak, but the current need to buy higher grades is evident and likely greater than before.
