High demand, tight supply buoy iron ore lump premiums

SHANGHAI, Jun 27 (SMM) – Iron ore lump premiums are likely to maintain the upward momentum due to high demand from Chinese steelmakers amid tighter raw material supply on environmental ground.

Imported lump premiums climbed all the way to $0.23/dmtu as of Wednesday June 27, up over 34% from $0.17/dmtu at the end of April. The price spread between spot Pilbara Blend lump and fines at Qingdao port has also widened to 150 yuan/mt as of Wednesday, from 110 yuan/mt in mid-May.

From the end of last month, frequent suspension of sintering machines and shaft furnaces in Tangshan due to air pollution led to shorter supply of sintered ore and pellet. This added to steelmakers' demand for lump ore, which buoyed premiums. 

Declining inventory of lump ore also accounted for the higher premiums. As of June 27, inventory of PB and Newman lump at Jingtang port dipped over 60% from early May, with iron ore pellet stocks declining over 45%. 

Some steel mills chose to use more lump rather than pellet, as tighter supply pushed up prices of the latter even more. As of Wednesday, Ukrainian 63% Fe pellet was offered around 900 yuan/wmt while PB lump was available at 600 yuan/mt in Tangshan.

A steel mill in Tangshan told SMM that it had raised the proportion of lump used in its raw material mix by two percentage points over the last month. If environmental cuts continued, the plant will maintain its high demand for lump ore, SMM expects.