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Rise in 65% Fe iron ore premiums may be limited: Wood Mac

Dienstag, 21 Januar 2020

A fall in iron ore prices expected over 2020, and potential for steel margins to weaken in China, may restrict premiums for 65% Fe fines over benchmark iron ore, consultancy Wood Mackenzie said this week.

Wood Mac expects the outright price spread between the 65% Fe fines index and the 62% Fe index to expand to 14% over 2020, from an average of 12% in 2019.

On an equivalent dry metric ton unit basis of iron including gangue, Platts 65% Fe fines premiums over IODEX 62% Fe fines in 2019 were just under 7%, with outright price premiums averaging 12%, based on calculations by S&P Global Platts.

Relative gains in premiums may depend on steel prices and margins, the consultancy said.

“With steel prices likely to remain under pressure and iron ore prices currently trading above our forecast, there is risk of further steel margin compression, limiting the scope for higher premiums for high grade ore,” Wood Mac research director Paul Gray said in a report Monday.

Iron ore 62% Fe IODEX fines have ranged in the mid $90s/dry mt CFR China this month, and Vale’s 65% Fe IOCJ fines saw spot trade reported above $110/dmt CFR last week.

Wood Mac expects the long-running trend toward Chinese steel mills consuming more high-grade iron ore to continue.

Replacing low-grade iron ores with higher quality ores “can come at a cost of rising alumina in blast furnace slag,” Gray said.

“Too much alumina increases slag viscosity, significantly reducing blast furnace permeability which negatively impacts fuel rate and overall productivity.”

Rising alumina penalties and falling silica penalties may be a consequence, he said.

Iron ore prices and quality differentials have been volatile since 2018, during periods of high steel mill margins, and disruption in supplies from Brazil and Australia.

Disruptions in low alumina iron ore supply from Brazil, along with increases in high alumina pellet trade from India to China, and greater concentrate and pellet supply at mines in China have prioritized shifts in qualities over this time.

“The past two years have been a roller-coaster ride for iron ore grade price spreads and impurity penalties – notably silica and alumina differentials,” Wood Mac said.

-- Hector Forster

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