Firm demand for high-grade resources to support low-alumina iron ore

Published: May 31, 2018 19:57

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Demand for low-alumina iron ore resources is likely to remain high in the short term as steel mills continue to chase high-grade resources on wide profit margins.

SHANGHAI, May 31 (SMM) – Demand for low-alumina iron ore resources is likely to remain high in the short term as steel mills continue to chase high-grade resources on wide profit margins, SMM believes.

Low-alumina resources such as Brazilian Blend fines and Carajas fines saw rapid increases in their prices of late. As of Thursday May 31, price spreads between Brazilian Blend fines and Pilbara Blend fines at Qingdao port widened to about 30 yuan/mt from 9 yuan/mt at the start of the month, up over 230%. Price spreads between Carajas fines and Pilbara Blend fines at Qingdao port also rose to 155 yuan/mt from 125 yuan/mt, up 24%.

Weak domestic supplies of iron ore fines are also likely to support low-alumina resources. Production at mines in Shandong and Guangdong areas are limited on environmental concerns, even as mines in Shanxi province, Handan-Xingtai area in Hebei province and Liaoning recently resumed production. Overall domestic supplies of iron ore fines are unlikely to pick up in the short term.

International supplies of low-alumina resources are also tight. In April, the Minas-Rio mine in Brazil suspended production after a pipeline burst. The mine produced iron ore of some 16.8 million mt in 2017, and produced 3 million mt in the first quarter in 2018, SMM learned. A labour strike in transportation in Brazil is also likely to weigh on supplies.

The most traded contract on the Dalian Commodity Exchange traded strongly rangebound on Thursday May 31 and closed at 462.5 yuan/mt, up 0.43%. In the spot market, traders slightly raised some offers. Pilbara Blend fines traded at 450-455 yuan/mt in the Shandong area and at 455-460 yuan/mt in the Tangshan area. Overall trading was thin as purchasing enthusiasm of steel mills weakened.

SMM's MMi Iron Ore Port Index remained unchanged at 472 yuan/wmt fot Qingdao on Thursday May 31 for 62% Fe fines.

The index for 58% Fe fines gained 4 yuan/wmt to 326 yuan/wmt but the index for 65% Fe fines edged down 1 yuan/wmt to 566 yuan/wmt.

In May, the average monthly index for 62% Fe fines stood at 476 yuan/wmt fot Qingdao, 326 yuan/wmt for 58% Fe fines, and 570 yuan/wmt for 65% Fe fines.

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Market commentary iron ore

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