Analysis on the Premiums of Lump Iron Ore

SHANGHAI, Sep 29 (SMM) - Before the National Day holiday, the bears of macro front were paid off. The iron ore futures prices rebounded slightly due to the improvement in fundamentals, and the spot prices of iron ore continued to rise. Supported by the raw material, the profits of steel mills recovered again. As the raw material procurement of steel mills was still in process, the trading atmosphere of the spot market was relatively active.

In September, the prices of lump ore, especially PB lumps and Newman lumps, continued to rise. From July 22 to September 27, 2022, the spot prices of PB lumps rose from 780 yuan/mt to 890 yuan/mt, and the spot prices of Newman lumps rose from 790 yuan/mt to 900 yuan/mt. The premiums of Fe 62.5% lump ore stood at $0.165/dry mt, up 63.37% from August; while the premiums of pellets fell from $27.9/dry mt to $26.1/dry mt, down about 6.6% from August. The premium spread with pellets and lumps gradually narrowed.    

As the National Day holiday is approaching, steel mills have a certain demand for restocking. On the supply side, the shipment of lump ore from overseas mines was relatively stable in the past two months. The terminal demand showed marginal recovery. The price hike of coke was not yet implemented. As the profits of steel mills recovered, the demand for iron ore increased.

According to the inventory across ten major ports tracked by SMM, the inventory totalled 89.83 million mt as of last week, down 2.3% from a week ago. Among them, the inventory of lump ore fell by 3% to 15.81 million mt as the shipment of lump ore increased. As the inventory of Newman lump at Caofeidian port was more abundant than that at Qingdao port. Therefore, the prices of Newman lump at Caofeidian port were lower with better circulation. The PB lumps at Qingdao port were more abundant, hence steel mills in Shandong tended to purchase PB lumps at Qingdao port.      

According to SMM research, due to the poor air quality in Tangshan recently, the sintering production of steel mills was restricted and the number of transport vehicles entering the factory was also limited. Although the impact was limited in the short term due to the existed sintered ore inventory in steel mills, in the long run, the demand will shift to lump ore, which will support lump ore prices.

According to the transaction prices of lump ore of forward spot platform, the premiums of seaborne iron ore arriving in September stood at $0.1150/mt and that of seaborne iron ore arriving in November stood at $0.1950/mt. The demand for lump ore was greatly affected by seasonality. According to the production restriction plan for the heating season in the same period of previous years, the proportion of sintered ore may decline again, while the proportion of lump ore will increase during Q4. Demand for lump ore will pick up and the premiums may increase.