China: Tightening supply lifts China's iron ore lump premium

• Portside lump inventories drop to seven-month low
  
  
• Mills curb lump usage to reduce production costs
  
  

Mysteel Global: China's portside iron ore lump premium against 62% Fe fines has strengthened markedly over the past two weeks. The increase has been largely driven by tightening lump supply in China, even as the appetite of steelmakers for the material wanes, Mysteel Global noted.

On 21 May, Mysteel assessed the 62.5% Fe Australian iron ore lump premium against 62% Fe Australian fines in the Chinese portside market at RMB 1.5905/dmtu ($0.234/dmtu), up by RMB 0.4644/dmt on month. Iron ore demand among Chinese steelmakers has remained firm in recent months as mills have kept their blast furnaces (BFs) running at relatively high levels. During 15-21 May, the average capacity utilisation rate among the 247 BF steel producers under Mysteel's tracking increased for a second straight week by another 0.6 percentage point on week to 90.3%, the highest level since November last year.

However, actual consumption of lumps among Chinese steelmakers has declined. Mysteel's tracking of the 114 Chinese BF steel producers sampled in another survey showed that the ratio of lump ore added into furnaces over the past month had dropped steadily to an average of 10.83% as of 20 May, the lowest ratio since February.

Rising lump premiums have prompted mills to control lump usage to reduce their production costs, a market watcher based in Shanghai explained. After all, lump premiums began rising in early February after hitting multi-year lows and since then have swollen multiple times.

Meanwhile, rising metallurgical coke prices over the past two months have further discouraged steel mills from using lump ore, the market watcher added. Chinese met coke prices have risen by RMB 150-165/t since April, with the latest price hike of RMB 50-55/t taking effect on 11 May, as reported.

As a result, lump ore has become less economic for steelmakers, as using more lump in blast furnaces typically requires higher coke consumption compared to sinter feed or pellets.

"Generally, the strength of lump premiums so far this month is primarily attributed to a significant reduction in availability," the market watcher said, noting that portside lump stocks have fallen sharply since mid-April.

By 21 May, lump inventories stockpiled at China's 47 major ports under Mysteel's tracking had thinned by 886,200 tonnes (t) or 4.7% on month to 18.04 million tonnes (mnt), a seven-month low.

Despite the declining cost performance of lump ore overall, Newman lumps have remained popular among steelmakers, which has also helped support the broader lump premiums, Mysteel Global learned from market sources.

Note: This article has been written in accordance with a content exchange agreement between Mysteel Global and BigMint.