Prices ease as China mills' iron ore pellet use falls

Posted on 25 November 2021

China's integrated steelmakers have reduced the ratio of iron ore pellet feeds in their blast furnaces as a means of cutting production costs, the strategy behind the gradual decline in pellet prices, market sources remarked on Wednesday.

 

"Steelmakers in North and East China are prone to cutting their consumption of pellets when they find that smelting these is no longer cost effective, especially when coke prices have dropped a lot and the tough restrictions on sintering operations have been lifted," a Qingdao-based iron ore trader remarked.

During this month alone, China's national composite coke price has plunged by Yuan 1,146.3/t as of November 23 to reach Yuan 2,944.2/t including the 13% VAT, a low since August 16.

According to the Qingdao trader, for many steelmakers, saving money is their priority now when their steel margins have been so severely squeezed and when some makers have actually lost money.

"Even though smelting lower Fe-grade iron ore can impact costs - because normally, more coke needs to be consumed - the price competitiveness of using higher Fe-grade ore products including pellets is even more questionable," he added.

China's steel mills tend to use more iron ore pellets in their melts, especially when sintering operations are curtailed, as lumps fed into furnaces require more coke to be consumed than do sintered iron ore feeds and pellets, Mysteel Global notes.

Mysteel's data also suggests a similar trend. As of November 17, the 64 mills surveyed regularly by Mysteel had seen the proportion of pellets in their furnace feedstocks dip to 15.67%, a low since mid-July 2020. In late September, the ratio was around 17.5%.

The adjustments the blast furnace makers are making has seen the price premium for imported iron ore pellet drop amid the softening demand, even though pellet inventories at Chinese ports remain low, the trader also mentioned.

As of November 23, Mysteel's 63% Fe iron ore pellet premium against 62% Fe Australian fines had declined to $42.05/dmt - a low since October 20. Earlier this month, the premium had soared to a near three-year high of $55.4/dmt on November 4.

As of November 18, total pellet inventories at China's 45 ports were at 3.77 million tonnes, still a relatively low level in the past three years, according to Mysteel's data.

Meanwhile, with pellet demand weakening, demand for both domestic and imported iron ore concentrates has also declined, the trader noted, and caused their prices to tumble recently.

"But we still hold some imported concentrates at hand. After all, normally the winter season will see frequent curbs on steel mills' production in North China so concentrates and pellet may still have some chance," he explained.

Source : Mysteel Global