The Mysteel lump premium had two major historical highs in the past five years. The first in 2014 saw the premium climb from $0.036/dmtu in June to $0.320/dmtu at the end of December, an increase of almost 900%. The second started from a record low of $0.023/dmtu at the beginning of 2017 to a record high in the five-year period of $0.428/dmtu, an 18-fold increase. By October 2017 the index started to plummet and settled at $0.085/dmtu.
Looking at the Mysteel PORTDEX (portside) spot lump brand assessments, the spread between Pilbara Blend Lump (PBL) and Pilbara Blend Fines (PBF) in Qingdao Port increased from 200 RMB/wmt at the beginning of December 2018 to 218 RMB/wmt at the end of the month. The spread in January 2019 has been maintained at a consistently high level of 215 yuan/wmt.
Throughout 2018 the lump premium has been on a reasonably consistent upward trend, and is currently at $0.364/dmtu on the 28th January 2019, almost a 20% increase since the beginning of December 2018. This is above the 2014 peak but has not yet achieved the highest level seen in 2017. Despite this it is worth considering the current fundamentals of the lump premium, as the last five years price history has demonstrated after achieving a premium at this level there is likely to be a considerable downward adjustment.
There were two major factors that contributed to the increase in the lump premium during the 2018 price increase. Firstly, the sinter production limitations imposed in the Tangshan area throughout 2018 been a strong driver of demand as mills look to replace the sinter with lump in the burden feed. Secondly, according to Mysteel’s portside product volume statistics, the data shows that the total stocks of lump was around 20 million tonnes in the first quarter of 2018, and slowly declined from there throughout the second half of the year. The supply of Newman Blend Lump also significantly reduced in the fourth quarter leading to stocks of lump falling to its lowest level in 2018 of 2.5 million tonnes.
At the beginning of January 2019, the market was not optimistic about the outlook for the lump premium. Adding to the pessimistic outlook steel mill margins have been weak, meaning that demand for medium and low grade lump has increased and products such as Roy Hill Lump have begun to flood into the market in response. This has contributed to the suppressing of NBL and PBL prices. However, the premium still hovers at high levels and the spread of PBL and PBF in the port in also remains high at of 215 RMB/wmt.
From the market perspective, participants commented they do not have a clear indication on lump premium price movements in the next couple of months and the premium seems to be holding at this level. One market player stated that there was “little transparency at this time”. It remains to be seen whether the lump premium will follow the past trend of 2014 and 2017, or holds strong for the near term.
Written by Alison Tang, Index Research Analyst, tangxh@mysteel.com
Edited by Alina Arnold, Head of Indices, alina.arnold@mysteel.com
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