TRADE REVIEW: Seaborne iron ore market braces for bumpy Q2 amid trade tensions, thin demand

This report is part of the S&P Global Commodity Insights' Metals Trade Review series, where we dig through datasets and digest some of the key trends in iron ore, metallurgical coal, copper, alumina, cobalt, lithium, nickel and steel and scrap. We also explore what the next few months could bring, from supply and demand shifts to new arbitrages and quality spread fluctuations.

The Asian iron ore market may see heightened price volatility in the second quarter of 2025 due to rangebound prices in the first quarter, according to market participants, as global trade tensions intensify while steel demand fundamentals are expected to remain sluggish.

The Platts Iron Ore Index, or IODEX, averaged $103.64/dry mt CFR North China in Q1, marginally up 0.6% from Q4 2024 but down 16.1% from Q1 2024.

Despite disruptions from tropical cyclones, prices remained under pressure in Q1 due to intensifying trade tensions, slowing steel demand and the potential for further steel output cuts in China, according to analysts from S&P Global Commodity Insights.

The 2025 outlook for iron ore largely depends on US-China trade relations, where the recent trade tensions and tariffs are expected to indirectly reduce iron ore demand due to China's diminished steel exports, leading to a modest downgrade in our price forecast to an average of $96/dmt for this year, with further declines anticipated in the second half of the year, though there are expectations for potential monetary and fiscal stimulus from China, which could mitigate some negative impacts, analysts added.

High iron content materials lose traction

Supply-demand fundamentals for higher Fe content Brazilian fines were observed to be tepid through Q1, leading to a narrower 65%-62% Fe spread as a reflection of thinning appetite from end-users for cargoes such as Iron Ore Carajas, market sources said.

A narrower 65%-62% Fe spread indicates a weaker appetite for high-grade fines over medium-grade as sinter feed. Platts, part of Commodity Insights, assessed the spread at $12.4/dmt on March 28, 12% narrower from Jan. 2.

Demand for Brazilian high-grade fines was thin, evident from a decline in spot trading activity observed in Q1, with three cargoes of Vale's low alumina, low silica Carajas fines compared with 10 each in Q4 2024 and Q1 2024, according to Platts data. Demand for Brazilian medium-grade fines, however, was relatively stable.

The total traded volume slumped 63% to around 540,000 mt from over 1.4 million mt, both quarter over quarter and year over year -- an indication of waning buying interest as attention shifted toward more economical feedstocks.

An influx of Brazilian medium-grade sinter feed products made inroads into China amid favorable discounts in Q1, as market participants largely brushed off the impact of the rainy season on any export supply tightness.

Even at Chinese port stock markets, high-grade fines did not attract much interest.

"As mills' margins are still recovering, the preferred go-to brand is still the more liquid medium-grade fines, which in turn made high-grade fines such as Carajas less appealing to buyers, causing demand to dip [in Q1]," an east China-based source said.

For Q2, market participants expect the market to remain in the same bearish vein.

Waning interest in direct charge ores

Seaborne buying interest for lump and pellet weakened in Q1 due to thin steelmaking margins, as end-users lowered their use in blast furnaces with little optimism moving into Q2.

The number of spot lump cargoes traded in Q1 was 24, down 11% quarter over quarter and 14% year over year, according to data from Platts. The equivalent volume was down 22% quarter over quarter and 16% year over year.

Mills adjusted their blending ratios to accommodate more sinter feed feedstocks due to cost considerations, while a lack of sintering restrictions in Q1 also weighed on lump demand.

Platts assessed the seaborne lump premium at 14.65 cents/dmtu March 28, down from 14.9 cents/dmtu on Jan 2.

Chinese steelmakers displayed limited interest in seaborne pellet cargoes, largely attributed to weak margins and stagnant hot metal production.

Furthermore, considering mills' low-inventory approach with restricted pellet usage in blast furnaces, port-based on-demand purchases were sufficient to fulfill operational requirements.

Platts assessed the weekly 65% Fe pellet premium at $12.9/dmt CFR North China on March 26, falling 30% from Jan. 8. The Platts daily 63% Fe blast furnace pellet premium was at $6.7/dmt on March 28, down 18% from on Jan. 2.

Steel mills that were able to adjust their blending ratios said they would prefer pellets as the more cost-effective choice, as pellets were more economical in comparison with lump.

In addition, the merger of Indian producers National Mineral Development Corporation and Kudremukh Iron Ore Company earlier in 2025 has led to lower production costs, driving up export volumes in Q1. Nevertheless, this has been accompanied by a deterioration in product specifications, as KIOCL's Fe content dropped from 63% to 60% and combined silicon dioxide and aluminum oxide increased from 8% to 12%, causing its pellet premium to shrink considerably to around $6/dmt over the 62% index through Q1.

As steel mills generally lacked a strong preference for higher-grade pellet products, the lower-grade pellet has gained favor among Chinese steelmakers looking to reduce costs and productivity.

Seaborne buying interests for lump and pellet are expected to remain weak in Q2 amid weak steelmaking margins, as end-users lower their use in blast furnaces.

Portstock gains more eyeballs

As lean inventory and faster raw material turnover rates remain the focus of Chinese steel mills, both traders and miners foresee a shift in attention toward the Chinese domestic port stock market in Q2.

Reduced long-term volume contracts saw Chinese steel mills buying smaller volumes at port in Q1. Moreover, with inventory levels accumulating, there were occurrences of inventories being let go at lower prices due to stock clearing. The sub-optimal import margins in Q1 have been a significant consideration for market participants, hindering seaborne procurements.

Vale's Brazilian Blend Fines saw returning interests at Chinese domestic ports in Q1, with market sources citing import margins and smaller trading volumes as main factors for its port sales.

"The flexibility for steel mills to buy at smaller volumes on a need-only basis proved to be advantageous as they typically struggle to consume a full capesize-vessel of BRBF," a China-based end-user said.

Meanwhile, more Indian fines have also made inroads to Chinese ports, weighing on the cost-effectiveness of Australian FMG's Super Special Fines and Fortescue Blend Fines.

Indian fines have seen their discounts widen from around 17% to the IODEX in Q4 2024 to around 20% in Q1 2025, putting pressure on other low-grade brands.

"The inventories for low-grade fines piled up, alongside Indian fines, resulting in the low-grade brands facing greater competition at the ports," another market participant said.