Analysis: Iron ore 65% Fe fines premiums rise as China steel demand recovers

London — Stronger Chinese steel markets aided by stimulus are helping boost premiums for 65% Fe fines over benchmark iron ore fines, according to analysis by S&P Global Platts on Tuesday.

As Chinese steel output and demand recovered from the COVID-19 outbreak in the first quarter, Vale's IOCJ fines have seen prices increase over mid-range fines since April.

The price increases also support iron ore concentrates, which typically trade using the fines as a base.

COVID-19 measures have disrupted shipments of concentrates and lump ores from South Africa, Chile, Canada and Peru in April, according to trading sources.

Iron ore 62% Fe IODEX fines have ranged in a $80-90/dry mt CFR China band so far this month, and Vale's 65% Fe IOCJ fines saw spot trade at $106/dmt CFR on Monday.

The Platts 62%-65% Fe spread widened in the past month and was at $17.60/dmt on Tuesday, up from April's average of $15.47/dmt.

Higher iron ore prices and wider spreads with 65% Fe index are adding to costs for steelmakers, with many in Europe operating close to breakeven cash margins, despite lower benchmark premium coking coal prices in April.

Since the end of April, Platts 65% Fe fines index has seen premiums up to 15-16% over IODEX 62% Fe fines on an equivalent dry metric ton unit basis of iron, including gangue, based on calculations by S&P Global Platts.

Platts 65% Fe fines dmtu premiums averaged at 10.7% over IODEX in Q1.

The Platts 58% Fe low alumina fines assessment saw a spread of 4.9% below IODEX 62% Fe on a dmtu basis in Q1, while since April, the spread narrowed to 4.7%.

Weaker iron ore pellet demand in several contract-based global markets, which are suffering from lower steel demand brought on by the coronavirus outbreak, have helped increase concentrate supplies.

Concentrates are meeting demand for high-grade sinter feed also in Europe, and supporting low sulfur and phosphorus in the iron burden, especially where PCI coal injection into blast furnaces has been reduced, a market source said.

Stronger steel sales and pricing in China with the potential for exports helped manage steel inventory levels down, while domestic scrap prices increased last week.

Stronger industrial demand in China led to stronger domestic HRC prices over exports, investment bank Jefferies said in an update Monday.

Domestic and export rebar markets are showing signs of improving pricing, it said.

"Chinese steel exports remained strong in April as steel producers reduced domestic inventories via stronger domestic demand and exports," analysts led by Alan Spence said in a note.

Steel producer Baosteel, part of China Baowu Group, expects China to provide stimulus around investments, such as large-scale projects. These will require construction and infrastructure-grade steels, which may support long steel markets, along with plate and some specifications for flat steel.