A recovery in steel and pig iron production in the Atlantic Basin markets has led to stronger demand for iron ore pellets and met coal, stabilizing prices and premiums, according to industry participants.
Iron ore quarterly contract pellet premiums are at an all-time low in the fourth quarter, with S&P Global Platts Atlantic blast furnace contract pellet premium falling to $27.50/dry mt in October, down $1 from September, with a broader price range of Q4 settlements.
While miners may feel it is too early to settle first quarter 2021 pellet premiums, suppliers indicated expectations of higher demand from steelmakers amid a growing uncertainty from the impact of further coronavirus-related restrictions.
After a crash in output in the second quarter, EU pig iron output climbed for the fourth consecutive month in September, according to the latest World Steel Association data.
EU pig iron production between April and September was 28% lower than the same period of 2019, as regional economies slowly try and return to normalcy while infection rates have increased since September.
In Brazil, pig iron output last month was 3.6% stronger than a year earlier, even with rates slowing down from August, when steel mills clocked the highest monthly iron production since February.
The rise in volumes for restocking as furnaces resume may potentially lead to higher-priced opening offers for pellet premiums, rather than extending current premiums.
Some miners held premiums stable from the third quarter through this quarter.
A longer-term fixed price pellet premium was reported to have been agreed into end-Q1 close to the Platts Atlantic BF contract premium assessment, although this may be linked to overall pricing terms and from a single origin or region, rather than followed by the market at large.
Two iron ore marketers said there may still be price upsides available on the table to lose, with agreeing to a longer-term premium at this point in the market cycle.
Buyers looking for longer-term premiums would indicate the market expects the premium is going to rise while there are uncertainties on demand, an executive said.
US COAL
US met coal miner Arch Resources closed North American 2021 contract business before the end of September, locking away about 20% of projected annual volume, the company said Oct. 22.
Arch added that major customers requested accelerating met coal shipments in recent weeks, and new business inquiries were picking up.
US pig iron output has continued to improve sequentially since May, with September’s 1.6 million mt still 14.5% lower than a year earlier.
Rio Tinto earlier this month said it has been adjusting production ratios at its Canadian IOC operation toward greater pellet supplies from stronger concentrate volumes in the second quarter, “following signs of recovery in demand from Europe.”
After maintenance in Q3, IOC was operating five of six pellet trains, and highlighted plans to bring back the sixth unit by year-end.
Iron ore miner Ferrexpo, the world’s third-largest pellet exporter, said on Oct. 6 that it was commissioning and ramping up an additional iron ore concentrate module in Q4 at its Ukraine operations. This follows Q3 pellet output of 2.5 million mt, 12% below Q2 and stable year on year, after maintenance in September.
A recovery in steel prices and higher steel contract pricing in the Americas and Europe was adding optimism for raw material suppliers.
Higher productivity to capture improved markets generally supports iron ore pellets and premium HCC as blast furnaces restarted first in Brazil, Europe and then the US over the past few months.
Stronger demand for met coke and PCI in Europe advanced expectations of stronger restocking.
Pricing terms against the benchmark index saw tighter differentials for US high volatile matter coals and other coking coal cargoes loading off the US East Coast in Q4 against prior contract terms, several US miners said.
“Steel mill utilization rates are slowly but steadily marching higher as well, with US mills operating at nearly 70% this past week, versus a recent low of 51% in the spring,” Arch said. “In North America, 18 of 27 blast furnaces are now operating — versus just 12 at the low point — and European steelmakers have restarted nearly half of the 25 million tons of capacity that they idled earlier in the year.”