International Demand

Low steel mill margins in China reduce demand for low alumina cargoes

Ongoing production cuts in China and planned blast furnace maintenance over the winter signaled the unlikely recovery of steel demand through the end of 2023. Low margins reduced demand for ore shipments by low alumina iron.

Deteriorating steel margins that began early in the third quarter limited sourcing decisions to the cheapest cargoes, crippling demand for low-alumina cargoes.

China’s hot-rolled coil inside margin and rebar inside margin were minus 35.88 yuan/ton and 29.26 yuan/ton, respectively, on Nov. 9, according to data from S&P Global Commodity Insights.

As a result, penalties for impurities like alumina continued to drop. Beneath the 62% Fe index, the lower band alumina differential of 1% to 2.5% closed at $1.70/dmt on November 9, while the upper band alumina differential 2.5% to 4% closed at $2.10/dmt, hitting its 2022 low, according to data from S&P Global.

Alumina spreads were at a 2022 high towards the end of the first quarter, at $8.50/dmt for 1% to 2.5% alumina and $9/dmt for 2.5% to 4% , due to rainy weather affecting the supply of Brazilian cargoes, which are generally low in alumina. The differentials had also been supported by expectations of a tighter supply of high-grade ore shipments due to their redirection to Europe amid the Russia-Ukraine conflict.

Market participants who have low-alumina cargoes like Brazilian blend fines and high-grade Carajas fines for sale said that demand for them has been quite subdued, and while there were offers, the requests were far from their expectations.

“The offers we have received are almost $1.50 to $2/mt less than what we are offering, and it has been difficult trying to sell them,” an international trade source said.

With weak demand for IOCJ, the spread between the 62% Fe Iron Ore Index and the 65% Fe Iron Ore Index narrowed to the lowest point of the year at $9.45/mt.

The same trend of weak demand for low alumina cargoes was reflected at the port. Several China-based port sources said cargoes like BRBF, IOCJ and Yandi fines were piling up at the port.

“Factories, traders and the miners themselves are all scrambling to sell their BRBF and IOCJ cargoes,” a China-based port source said.

The spread between BRBF and low-Fe liquid Pilbara Blend Fines was around 15 Yuan/wmt, according to multiple sources.

“The gap between the two brands has narrowed a lot since the beginning of the year. Previously it was around 50 yuan/wmt,” said a China-based port trader.

On November 9, offers for BRBF on the eastern port were heard around 715 yuan/wmt, with even lower offers at 705-710 yuan/wmt, prices negotiable. The PBF traded at 687 yuan/wmt on the same day, sources said.

However, some market participants have stated that if the gap between BRBF or IOCJ and liquid PBF continues to narrow at port, the preference for these higher Fe cargoes may return, with mills slowly shifting to the combination of high and low grade fines from their current blend of medium grade fines.

“The current price difference between using a low-to-high grade mix and a mid-grade mix only in blast furnaces is about 15 yuan/wmt more expensive. Theoretically speaking, if the spreads narrow further, we could see interest in cargoes like BRBF and IOCJ return again,” said a China-based trade source.
Source: Platts