London — High-grade iron ore premiums have taken the biggest knock amid price corrections in China-related spot steel and iron ore markets this month, as lower offers and technical factors limit a shift to more polluting lower grade ores. Receive daily email alerts, subscriber notes & personalize your experience. Coking coal and coke prices have been less affected, as tighter supplies of premium grade met coals and potential restrictions on coking over the winter supported high CSR coke prices. Much has been made of a shift in using lower quality iron ores, away from high iron containing grades with low impurities such as lower alumina that facilitate efficiency in blast furnace operations. Silica and alumina penalty premia have weakened a little over November, which may suggest more price strength for lower grade ores. Relative prices for 58% Fe low alumina fines have shown a discount of 5%-7% over IODEX on an adjusted iron basis, while Friday saw the spread move to a discount of 6.7%. Relative prices for Platts 65% Fe fines have weakened, as outright prices slid to $82.25/dry mt CFR China Friday, down 15% from a peak this month of $97.25/dmt on November 5. Over November, premium blast furnace coke prices in China have dropped by less than 5%. The Platts 65% Fe fines index peaked at over 35% premium to IODEX 62% Fe fines on an equivalent iron basis in early September. The 65% Fe to 62% Fe fines spread reached a record premium of around 39% for the high-grade marker in mid-July. On Friday, the 65% Fe premium settled at 19.87% over IODEX, and 65% Fe fines were $16.80/dry mt higher than the 62% Fe IODEX benchmark. "High grades are selling off," a trader said of the market in China. Outside China's spot market, longer term premiums and contracts may prevail at higher relative prices for materials such as concentrates. Concentrates for some grades in Chinese spot offers have moved to price below 65% Fe fines index, after achieving premiums prior, the trader said. However, the segment is finding more support, after Chilean producer CAP Mineria declared force majeure to some of its buyers last week as a result of a fatal accident at Puerto Guacolda II port in Huasco. This may lead to works on port infrastructure and curtail concentrate and pellet feed shipments, market sources said. Iron ore industry executives remain sanguine over the price correction led by high grades. Platts Steel Markets Daily is a leading source for steel raw materials news and prices (including met coal spot prices; Platts IODEX and TSI 62% benchmark assessments). Click the link below to receive the publication for a short period of time. "We recognize it got an exceptional differential level before," said a source at a high-grade iron ore mining developer. He believed a premium of around $5/dmt per 1% Fe or a range of $4-$6/dmt per 1% Fe over the mid-range 62% Fe be more reasonable to expect longer term. The differential ballooned to over $9/dmt per 1% Fe between 62%-65% Fe in July and September, based on Platts indices. Platts mid-range differential between 60%-63.5% Fe was $1.30/dmt Friday. Negotiated prices and offers have moved down for IOCJ from Vale over the month, while total pellet prices for typical 64% Fe Indian material have lost about 20% since mid-October to $109/dry mt CFR China as of November 28, according to Platts weekly price assessments. High-grade spot volume remain relatively strong, off spot trade levels earlier. Spot activity in lower iron grades is thin and additional cargoes and new grade brands may be going to existing customers. Iron ore fines, concentrates and pellets with high iron content have seen spot prices and indicative premiums fall quickly, tracking weaker steel prices and indicative mill margins down. Lump spot premiums have also weakened from a recent high. Lower grade 58% Fe low alumina indices have seen pricing relativities more stable, and lower volume spot trade and more contract sales may make any shift in usage by ore grade harder to read. China's steel output in early November had rebounded from late October, and while weaker than rates earlier this year, remain 6.45 higher year-on-year, according to industry group CISA. With pollution-related industry attention at a fore in an environment of more targeted steel cuts over this winter than a year ago, demand for high grade steel raw materials may remain sustainable to ensure compliance. US iron ore and steel industry executive Larry Lehtinen believes the Tacora concentrate project in Canada will find buyers in various segments, as demand rises for high grade iron ore and as feed for pelletization. Lehtinen said the current downward trend in higher iron grades may be a seasonal fluctuation that will reverse come the spring when Chinese iron ore demand and steel output rises. Attention in northeast Asia and Europe, as well as the Middle East on contract terms and premiums may factor in longer-term demand for premium grade materials and sensitivity to impurities. Tight market segments such as pellet feed and direct reduction pellets find growing demand unfulfilled by existing producers this year due to force majeure at mine operations and increasing sensitivity around impurity content in meeting blast furnace and DRI operating regimes with steel specifications. Discussions around using 65% Fe fines indices or a larger factor of high grade spot indices as a basis for contact pricing in some segments are heard. This may be considered as miners and pellet producers have suggested to move away from 62% Fe fines. A move to a higher grade product index may aid clarity around pricing incentives to pelletize material, rather than arrange sales as concentrated ore. --Hector Forster, hector.forster@spglobal.com --Edited by James Leech, newsdesk@spglobal.com
Rising demand for lower quality iron ore has offset the premiums that were put on higher grade ore, as price corrections in the Chinese spot market for steel and iron ore took place in November. The Australian dollar was trading at US61.01 per US dollar, down from US63.06 late last week. At the height of the difference in spread, high grade iron ore held a premium of 39% over benchmark 62% ore in mid-July.