High stocks see China imported IO pellet premium hit 6-mth low
Mysteel's 63% Fe Indian iron ore pellet premium against 62% Fe Australian fines has followed a generally downward trajectory since last December, with the $5.45/dmt premium on February 6 lower by a huge 35.1% from two months earlier.
During the same period, the 45 major domestic ports covered in Mysteel's weekly survey saw their pellet stocks steadily swell for nine consecutive weeks to touch a seven-month high of 6.7 million tonnes on February 1, the latest survey found.
In fact, the accumulation of port stocks in recent months is mainly attributed to the weakened demand for imported pellet among Chinese steel mills, Mysteel Global noted.
During the winter lull in steel consumption, many steelmakers were forced to rein in their blast furnace operations as the mills' low steel margins made production unviable, as reported.
Mysteel's regular monitoring on the 247 Chinese steelmakers it samples showed that their hot metal output averaged 2.23 million tonnes/day on average during January 26-February 1, slumping by 7.4% from the high level of 2.41 million t/d in early November.
Their waning enthusiasm for production led many makers to increase their consumption of sintered ore in their furnaces, rather than the more expensive pellet that generally grades higher in Fe content and generates more hot metal, Mysteel Global noted.
Consequently, the pellet feed ratio in the 114 Chinese steel mills Mysteel checks regularly shrank by 0.15 percentage point from November 30 to reach an average of 15.18% on February 1. The proportion was also 0.83 percentage point lower on year, reflecting the domestic mills' poorer steel margins this year.
During the remainder of February, the supply and demand fundamentals of imported iron ore pellet in China may remain the same and keep the pellet premium under pressure, a market watcher in Shanghai predicted.
"It is hard to see a large recovery in the steel margins of many domestic mills this month, so their motivation for boosting hot metal output will be constrained," she explained, adding that consequently, their pellet use will remain low in the near term.
Written by Lea Li, liye@mysteel.com
Edited by Russ McCulloch, russ.mcculloch@mysteel.com
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