The settlements for BF-grade pellet premiums are double the $20/dmt premium in the previous quarter and 93pc higher than $24/dmt for DR-grade pellets.
Quarterly iron ore pellet premium contracts are largely settled between Vale and ex-China buyers on a floating basis. The price increases have been driven by a post-Covid-19 rebound in global steel output and demand that has tightened supplies of iron ore in seaborne markets and steel supplies in Europe, a major buyer of Vale pellet.
Most of Vale's pellet is sold into Europe, so the higher premium is about its post-Covid-19 recovery, an east China iron ore trader said. Pellet demand is also higher in China during the seasonal winter increase, he said.
The Argus benchmark northwest European hot-rolled coil index has increased by €184.25/t, or 41pc, to €635/t ex-works since 1 September. The Argus 65pc iron ore fines price has increased by $27.90/dmt, or 20pc, to $165.05/dmt over the same period.
Europe's shortage of steel may ease in the second quarter as steel mills bring back capacity. But blast furnace restarts, including one at ArcelorMittal's Dunkirk plant in France, may in turn add further support to iron ore prices.
Brazilian iron ore supply challenges and Australia's limited supply upside have sent 62pc and 65pc fines indexes to seven-year highs. Vale cut its iron ore production guidance to 300mn-305mn t for 2020 and gave a conservative 315mn-335mn t for 2021.
The planned restart of Vale's Samarco joint venture with UK-Australian mining firm BHP this month will add an initial capacity of 7mn-8mn t/yr pellet. India's strong domestic steel rebound has pulled its pellet supplies from seaborne markets, shifting Chinese buying to Brazilian pellet that makes up the majority of 8mn t of port stocks, imported mainly by large-scale trading firms in floating basis deals.
Brazilian pellet with 66pc Fe traded at 1,320-1,345 yuan/wet metric tonnes (wmt) ($201-205/wmt) in Chinese portside markets last week.
The weekly Argus 64pc Fe, 2pc alumina pellet index has risen by $52/dmt, or 43pc, to $174/dmt since early August. Its implied premium against a weekly average of the ICX 62pc fines index was $21.09/dmt last week compared with $3.74/dmt in early August.
News Source: Argusmetals
Dec. 23, 2020 Beijing China