Miner Vale’s Q3 iron ore pellet premiums rise $10/mt

Steel producers may face higher contract iron ore pellet premiums in the third quarter, as Vale reported an increase to premiums, and other producers indicated offers would rise from Q2 premiums.

Vale told S&P Global Platts on June 4 it had defined a $62/dmt premium against 65% Fe fines CFR China pricing, for BF pellets in Q3, which is up $10/dmt from Vale’s reported Q2 premiums. Vale sells limited quantities of pellets under contract in Europe, which mainly buys BF pellets.

For direct reduction pellets, Vale said Q3 premiums were defined at $70/dmt, up from $60.20/dmt reported for Q2.

The DR premiums also apply to 65% Fe fines pricing.

Vale pellet definition

Vale, the world’s largest pellet supplier, said it has concluded its “pellet premium definition process” with buyers. Vale is said to have agreed with customers a single premium per grade, which matches supplies available with contract commitments, and any unperformed or unplanned volumes would be directed to other customers or spot markets. Vale has seen lower pellet output in the past two years, on restricted supplies of pellet feed in Brazil.

The company typically uses fixed freight netback terms for its contracts, which would lead to higher FOB iron ore prices compared with spot Capesize rates between Brazil and China references, using May data, according to a supplier familiar with the terms.

In Europe, Q3 negotiations were at an early stage, sources said, with several companies yet to offer firm levels or enter into premium discussions. Europe may stick to largely pricing BF pellets on a 62% Fe fines basis, with increases expected from settlements for Q2, a producer said this week.

A DR pellet buyer confirmed Vale’s Q3 premium after the reported settlement. BF pellet buyers contacted on June 4 still saw limited settlements, and tight supply from Vale determining a premium offer, rather than demand alone leading to the quarterly increase.

Q2 pellet premiums were heard in a low $60s to low $70s per dmt range, with large volumes of higher-grade pellets agreed at mid-$60s/dmt premiums to IODEX 62% Fe fines, according to market sources.

Pellet premiums were earlier expected to rise due to strong demand in Atlantic and Asian markets, and continued supply constraints and disruptions.

Vale’s pellet indications are in line with the market view on high demand and tight supply, with customers maintaining full contractual quantities, a supplier said.

Steel order books appears to be full into Q3, and steel producers have progressively increased steel prices, with no signs of change outside China, he added.

Iron Ore Co. of Canada’s Sept Iles terminal remains at below-capacity loading after a fire at the end of March affected storage and the loading of pellets and concentrates onto vessels, according to sources close to the operation.

Vale sells pellets under contracts to global markets, including to joint venture partners at its Tubarao pellet complex.

S&P Global Platts Americas and EMEA steel prices, and Europe and US steel mill spreads with raw materials, have seen strong increases through May. This may help absorb increased iron ore costs, after iron ore prices reached record levels in May, and remain at higher levels than in Q1.

The wider 62%-65% Fe fines spread in April and May was expected to support blast furnace pellet premiums, as the market in Europe largely uses premiums off the 62% Fe IODEX index. Suppliers may seek to close the gap by raising premiums to compensate or, alternatively, sell pellets and concentrates off the 65% Fe fines index.

— Hector Forster