China’s seaborne iron ore lump premium against 62% Fe fines has shown signs of retreating recently after the previous strengthening, which reflected Chinese iron ore traders’ slowed speculation buying when domestic steelmakers were enduring higher coke procurement prices and poor steel margins, according to market sources.
As of December 13, Mysteel’s 62.5% Fe iron ore lump premium against 62% Fe Australian fines eased to $0.134/dmtu, down by $0.0245/dmtu on week, despite the fact that the premium had increased to $0.1585/dmtu in early December when traders’ demand firmed, Mysteel Global noted.
Recently, domestic traders reduced their buying of lumps in that mills’ demand for the feed may cool in the near term, after noting that steelmakers’ margins on finished steel sales remained meager while their coke buying prices kept firming, according to a market source in Shanghai.
In general, a higher ratio of lump feeds in blast furnaces means higher coke consumption, compared with sintered iron ore feeds and pellets, Mysteel Global notes.
Last Friday, leading mills in East China’s Shandong and North China’s Hebei accepted an increment of Yuan 100-110/tonne ($14.4-15.8/t) in their coke procurement prices effective from December 9, as reported. And this marked the third round of merchant coke price hikes since November 24.
As a result, China’s national composite coke price under Mysteel’s assessment moved up to Yuan 2,773.3/t including 13% VAT as of December 13, being Yuan 96.6/t higher on week.
Meanwhile, Mysteel’s survey showed that the average loss suffered by Chinese integrated mills when producing rebar deepened by Yuan 27.67/t on week to Yuan 258.19/t as of December 13.
“Limited trading of lumps in the market then saw the premium retreat from the previous highs,” the source said.
In fact, “it’s not surprising that the lump premium fell, because it was traders’ active buying that had pushed up the price earlier – rather than steelmakers’ strong demand for the feed,” a ferrous analyst from a futures company in Shanghai told Mysteel Global.
She added that domestic traders were previously too optimistic about the recovery in lump demand from steelmakers in North China during the autumn and winter seasons, when sintered ore supply would usually decrease as stringent curbs will be frequently placed on mills’ sintering operations to reduce air pollution.
“But recently, steelmakers’ demand for lumps was not as good as those ore traders had expected,” she said.
This year, environmental restrictions in Tangshan in Hebei are less stringent and intensive than the previous years, the first source explained.
Due to Chinese steelmakers’ tepid demand for lumps, the price spread between 62.5% Fe grade PB Lumps and 61.5% Fe grade PB Fines at Qingdao port in Shandong had been narrowed to Yuan 100-110/wmt since early November, according to Mysteel’s assessment. The spread ranged between Yuan 105-178/wmt during the same period last year.
Written by Lea Li, liye@mysteel.com
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
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