[Ferro-Alloys.com] Even as S&P Global Platts IODEX 62% Fe fines benchmark fell Dec. 14 to $154.50/dmt, total pellet prices indicated well above earlier levels, potentially in the $170s/mt FOB range, may be displaced by more lump or lower grade alternatives as buyers question the longevity of higher steel and iron ore spot prices.
Some analysts feel iron ore prices have been spurred on by recent speculative demand, and stronger trade in derivatives around changes in forward iron ore supply and economic policies that may support steel demand.
Vale, the biggest iron ore miner, this month cut production guidance for 2020, while industry sources see strong iron ore demand in China, and tight pellet availability keeping near-term prices up.
Iron ore futures have seen higher relative pricing to physical indexes in recent days. The iron ore forward market has always been in backwardation, below spot physical prices.
The iron ore price on Singapore's SGX and on the Dalian Commodity Exchange hit a record high, based on demand due to high Chinese steel production, and concerns about supply, Commerzbank analyst Daniel Briesemann said in a Dec. 11 report.
"However, we believe that the price rise has long been exaggerated," Briesemann said. "What is more, it is likely to have been driven to a large extent by speculation."
Commerzbank pointed to noticeably higher open interest on both the SGX and the DCE in recent week, with the Chinese exchange raising margin requirements for all contracts with maturity dates up to May 2021 to 15%, from 11%.
"We wonder how long Chinese iron ore consumers will simply sit back and accept the high prices," Commerzbank said. "In response to prolonged and pronounced price rises in the past, they have tended to resort to the ample but lower-quality domestic iron ore, using their market power to force prices down."
Steel mills could reduce iron ore pellet demand in the first quarter in response to higher prices and premiums, especially where they can use more lump, or opt to use more sinter, market sources said.
News Source: S&P Global Platts
Dec. 23, 2020 Beijing China
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