Hebei mill to buy iron ore pellet linked to Argus
A Hebei steel mill in north China has signed an initial agreement to buy Indian pellet indexed to Argus assessments.
If testing is successful, the mill will buy 600,000t of pellet over a year priced against the average of Argus pellet indexes, 64pc Fe 2pc alumina pellet or 64pc Fe 3pc alumina pellet, both on a cfr Qingdao basis minus a discount.
The India-origin pellet has alumina ranging between 2-3.4pc, shipped monthly in 55,000t parcels. The first cargo under the agreement will arrive in China at the end of October or early November.
This underscores the looser correlation between seaborne pellet and fines markets, as well as China's long-term shift toward pellet that avoids the pollution of sintering fines. The differential between pellet and mainstream 62pc fines prices has been volatile over the past year, making it difficult to index pellet contracts at a set differential to fines indexes. Increased volatility in the most liquid fines market, 62pc mainstream fines, has also complicated pellet contract negotiations.
When iron ore markets hit 2019 highs in early July, the Argus 64pc 3pc Al pellet index was at $138/dmt priced at a 10pc, or $12.80/dmt, premium to the Argus ICX fines index at $125.20/dmt. This marked a collapse of the pellet premium from a year ago when 3pc pellet at $143.75/dmt was priced at $69.20/dmt, or 93pc, above the Argus ICX at $74.55/dmt.
Since July the differential has been volatile, with 62pc prices fluctuating between a high $80 and low to mid-$90/dmt, while pellet prices have slowly slipped towards $100/dmt. The 3pc pellet price yesterday at $103/dmt was at an 18pc, or $15.70/dmt premium, to the Argus ICX at $87.30/dmt.
China's environmental push is shifting mills' iron ore burden toward direct-charge imports of pellet and pellet feed. Brazilian mining firm Vale last month said it will begin grinding 65pc Fe IOCJ fines in China to sell as GF88 pellet feed product. Vale expects China's ratio of pellet in its blast furnace iron ore feed to grow from 14pc in 2018 to 19pc by 2025, requiring an additional 50mn t/yr of pellet and pellet feed. The ratio was 11pc in 2015.
India's pellet exports have increased sharply since 2016, driven by the closure of Vale and UK-Australian firm BHP's Samarco mine in Brazil in November 2015 that cut global supplies of seaborne pellet. China partly met its deficit with more purchases of Indian pellet. Vale's Feijao iron ore mine accident in January further cut pellet supplies.
India's total pellet exports increased by 0.76pc to 9.41mn t in India's 2018-19 fiscal year ending 30 June compared with 9.34mn t in 2017-18. India's pellet exports to China fell by 8.1pc to 6.96mn t in 2018-19 but gained new markets in Europe, South Korea and Malaysia.
source: Argus Media
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