[ferro-alloys.com]Direct feed iron ore materials, lump and pellet, continued to face downward pressure June 17 in Asia on a lack of liquidity and end-user inflexibility to increase utilization rates in blast furnace feedstock.

Seaborne iron ore lump premiums fell to 11.5 cents/dry mt unit CFR China on June 17, the lowest since September 9, 2019. For pellet premiums, the 65% blast furnace pellet premium fell to $13.60/dmt on June 17, the lowest since September 18, 2019, while the 64% pellet premium reached an all-time low of $9.25/dmt the same day.

Market sources pointed to a lack of stringent environmental regulations in China to drive direct feed usage and a strong demand for cheaper medium-grade fines due to their liquidity amid the current volatility.

Iron ore price levels are at their highest this year, but compared with the second quarter in 2019, there is still quite a lot of uncertainty if prices can continue to inch up further, an international trader said. Australian spot supply has increased significantly and traders would prefer liquid cargo brands to offload if the market turns against them, the source added.

Mainstream medium-grade cargoes can be used to push positions on futures but with pellet, it is much more difficult to find the right customer base, another trader said. For lump premiums, July is likely to remain a void with the current contango structure, with demand rolling over to third quarter paper positions, the source added.

There is limited support for lump due to the high inventory stockpile levels, and the likelihood of a rebound at current low levels also steers away traders looking to take a short position, the same source added.

Current price volatility and a general lack of flexibility with end-user blast furnace operations have also put off end-users from capitalizing on current low levels for pellet premiums.

There is a lack of end-user confidence that current levels of steel margins will remain supported for the next month at least, and increasing the usage of pellet in the blast furnace is not something that is easily reversible, a procurement source said. While pellet premiums are attractive on paper, the lack of liquidity in the secondary market compared with fines will put off many large end-users for now, especially with increasing inventory levels for pellet at the portside, the source added.

Several end-users pointed to continued fixed demand for certain pellet brands for blast operations' continuity, but were generally reluctant to stockpile additional cargoes at current pellet premium levels.

Pellet premiums are attractive but if iron ore prices start to fall, pellet fixed prices are not going to have any support, a China-based end-user said.

Several market sources saw opportunity in coloaded fines and lump cargoes, with interest seen in taking floating lump positions to secure mainstream fines at discounted spot premiums.

The outlook for lump is not good, but there are potential upsides for fines at both seaborne and portside markets, so the risk is an acceptable trade off, a China-based trader said.

(S&P Global Platts)

• [Editor:王可]