Indian pellet exporters have been experiencing limited buying interest from Chinese steel mills since 2nd half of Nov’17 following which Indian pellet export offers have observed a decline.
Indian pellet export offers have come down by USD 7/MT in a month’s time. Lets analyze the factors that have reduced buying interest of Indian pellets.
1. Increasing pellet inventories at Chinese ports – Towards the mid of Nov’17, pellet stocks at Chinese major ports increased to 1.85 MnT which rose further to 1.9 MnT in the following week. Market participants mentioned that Chinese traders were finding it hard to sell it to mills which resulted in rising port stocks.
2. Preference to imported concentrate over pellets – Chinese steel mills preferred buying imported concentrate (Fe 66/65%) grade and then converting them to pellets and using it as feed stock, rather than importing pellets at a higher price.
Price of iron ore concentrate (Fe 66%) kept hovering in the range of USD 80-82/MT, CFR China during mid of Nov’17. Considering conversion cost and transportation charges landed cost of pellets manufactured out of it stood around USD 105/MT.
On the other side, in the similar time span Indian pellet export offers were hovering at USD 120-125/MT, CFR China. Thus there still remained a price gap of USD 15-20/MT between the two making Indian pellets less attractive.
Falling buying interest for imported pellets resulted in sharp decline in spot pellet premium as well. Pellet premium for Fe 65% declined from USD 59.5/DMT, CFR China (in 2nd week of Nov’17) to USD 49.5/DMT, CFR (in 1st week of Dec’17).
Despite all these factors, SteelMint anticipates that downside in Indian pellet export offers is for short term and may not continue for a long time period. Below are the reasons that will support Indian pellet export offers –
1. Rising price of imported concentrate – Prices of imported concentrate (Fe 66%) have increased by USD 10/MT in last three weeks. Now the price for the same stands at USD 92-93/MT, CFR China. Thus the landed cost of pellets manufactured out of it now stands at USD 115-116/MT.
On the other hand, Indian pellet export offers are now hovering around USD 116-118/MT, CFR China. Thus the price gap between the two has narrowed down which may resume buying interest for Indian pellets.
2. Indian Pellet demand emerging from new markets – Indian pellet manufacturers reported inquiries coming in from countries like Korea, Middle-east, Europe , Japan for pellet procurement. Indian pellet exporters are hopeful that this might translate into long term buying contracts. This might boost Indian pellet export market further.
3. Uncertainty in resumption of operations at Samarco – India has emerged a major source of pellets to China this year after operations interrupted from Brazilian Samarco. In the latest update received the deadline for the settlement of claims between Vale and BHP Billiton and Brazilian authorities over the Samarco dam disaster have been extended to 20 Apr’18. If reports are to be believed there is uncertainty as to when operations will restart ?
4. High domestic pellet prices – After recent hike in iron ore fines prices and hike in sponge prices, domestic pellet offers in India have moved up. Thus, pellet manufacturers may not lower export offers when realizations in domestic market is good.
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