[iron ore] supply and demand increase pelletizing prices may be easy to rise and difficult to fall

Yesterday (22), the mine closed the bid for 70, 000 tons of PB in the first ten days of September, a premium of US $0.2770 per dry tonnage; The 62.5 per cent block premium closed at 0.2711, up 0.0099 from a month earlier, down 0.0569, or more than 17 per cent, from the year's high of 0.328 in early July. At this time, the pellet premium has continued to rise since late June; the current 63 per cent and 65 per cent pellet premiums are $63,75.5 per tonne, up 43 per cent and 51 per cent, respectively, from late June. The continuous rise of pelletizing premium is mainly caused by the change of supply and demand fundamentals, among which the sharp reduction on the supply side is the most important factor leading to the continuous rise of pelletizing premium.

Since the beginning of this year, the performance of major foreign pelletizing suppliers has not been satisfactory. As of the second quarter, Ukrainian pelletizing supplier Ferrexpo's pellet production fell by about 2.9% compared with the first quarter due to the overhaul of the production line up to 65%. Total production fell 1.2% in the first half of the year compared with the same period last year.

At the same time, Rio Tinto's Canadian (IOC) produced about 3.24 million tons of pellets and refined powder in the first half of this year, down more than 38 per cent from 5.26 million tons last year.

In addition, some buyers were affected by force majeure in August when Swedish miner LKAB suffered from a railway fire in Norway. LKAB is the EU's largest iron ore producer, accounting for about 80 per cent of the EU's iron ore production. It is also the world's second largest maritime pelletizer, producing 24.6 million tons of pellets in 2017. The brief decline in LKAB supply has exacerbated the shortage of global pellet supply.

In addition, since the beginning of this year, the reduction of domestic fine powder has led to a decline in pellet supply, which has also exacerbated the shortage on the supply side. Since the beginning of this year, the production restriction in the heating season has been lifted until April, followed by environmental protection inspection, which led to the total shutdown of steel mills and mines in Xuzhou area of Jiangsu Province. Affected by the Shanghai Cooperation Summit in June, the mine opening rate in Shandong Province dropped by 2.1 percent. In July, environmental protection and production restrictions in Tangshan and the Sishanling incident in Liaoning led to a reduction in the supply of refined powder in China.

According to SMM estimates, the domestic refined powder production in the first half of the year decreased by nearly 1100-12 million tons compared with the same period last year, and the reduction of domestic refined powder also led to a tight supply of pellets. In addition, in June, more pelletizing production lines in China began to arrange annual inspection, and the production of environmental protection shaft furnaces in most areas was also restricted, resulting in a more tight supply of pellets.

In late June, the pellet premium went up all the way up. SMM learned that since late June, due to environmental restrictions on production and sintering and frequent shutdown of shaft furnaces, steel mills have increased demand for lump ore, which has led to an increase in lump ore premium by nearly 46% in half a month. The alternative advantage of pellets for lump ore began to appear.

According to SMM tracking data, the current domestic port pellet inventory has fallen to its lowest level so far this year, down more than 18 per cent from late June.

Moreover, since late July, due to the limitation of blast furnace production in Tangshan area, increasing the output of hot metal by improving the taste of entering the furnace has also led to the recovery of pellet ratio. SMM learned that since late July, the average proportion of pellets in steel mills has increased by about 4 points to about 14%, while the proportion of lump ore has continued to decline since the middle of July.

In addition, coke prices were affected by environmental restrictions on production in just half a month to rise four times, the current Tangshan secondary metallurgical coke prices rose by more than 400 yuan / ton, an increase of more than 21%. The rising price of coke makes steel mills more inclined to choose clinker, while pellets are the best choice to reduce coke ratio and increase production.

In September, environmental protection and production restrictions continue to be strict, and market rumors say that Tangshan heating season production restrictions may be advanced to September 1, steel enterprises to limit the proportion of production is not less than 50%, steel enterprises in order to ensure hot metal production, The demand for pellets may only increase and not decrease. Moreover, according to the SMM data model, according to the 65 US gold mine, the current profits of thread and hot coil in steel mills are more than 1000 yuan per ton, and in coastal areas or higher, in order to stabilize production and produce smoothly, the demand for pellets will remain strong. Pellet prices are expected to rise rather than fall.