Spot iron ore lump premium reaches 11-month high

By Keith Tan in Singapore

December 03, 2014 - Spot premiums for seaborne iron ore lump reached their highest in 11 months Wednesday, lifted by a seasonal pickup in demand and tight supply.

Platts assessed the weekly spot lump premium at $0.285/dry mt unit, up $0.035/dmtu from the previous week.

The premium is normalized to a CFR basis and expressed over the IODEX fines assessment.

Among the seaborne trades concluded were a 62% Fe Pilbara Blend lump, loading December 16-25, sold Wednesday at $87.70/dmt CFR China.

Analysis continues below...

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A separate cargo was sold Tuesday at $88.60/dmt, loading December 13-22. When expressed as a premium to the IODEX on a dmtu basis, the trades, for which full details couldn't be

obtained, worked out to $0.29-0.30/dmtu.

An 80,000 mt cargo of 63.2% Fe Newman Blend lump loading December 11-20 was also heard offered Wednesday at $92/dmt CFR China, although no trade was concluded.

Other sources estimated the premium to be $0.27-0.28/dmtu, citing thinner trading volumes this week.

A trader noted the lump market to be in a steep backwardation, with material stocked at Chinese ports being sold about $6/dmt higher compared with seaborne cargoes loading in December.

Port stocks of PB lump in northern China were trading at Yuan 690-700/mt free-on-truck, including Yuan 35/wet mt in port charges and 17% VAT, market participants said.

This was $93.32-94.75/dmt on an import parity basis, according to Platts calculations.

A steelmaking source in eastern China said stocks of imported lump were low at Chinese ports, owing to steady demand from mills.

While producers like Rio Tinto and BHP Billiton mainly sell lump prior to loading, traders who held seaborne cargoes and had operations at Chinese ports were more likely to wait until they were discharged, in order to sell them at higher prices as port stocks, noted the earlier trader.

"Some [mills] have cash but have no credit lines," said the trader, explaining why port stocks -- which have to be paid in cash at sight -- were in stronger demand compared with seaborne material, which is typically paid by letters of credit.

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