Chinese factories cut steel prices by reducing the use of iron ore pellets

China's steel companies have reduced their share of feeding iron ore pellets to their blast furnaces to cut production costs, a strategy to gradually reduce pellet prices, market sources said Wednesday.



“Steelmakers in North and East China tend to cut pellet consumption when they find that smelting is no longer profitable, especially when coke prices have dropped dramatically and tight restrictions on sintering operations have been lifted,” Qingdao said. the iron ore merchant remarked.

In this month alone, the national price of composite coke in China fell by 1,146.3 yuan per ton as of November 23 and reached 2,944.2 yuan per ton, including 13% VAT, the lowest since August 16.

According to a Qingdao-based trader, for many steel mills, saving money is their priority now that their profit margins on steel products have dropped dramatically and some manufacturers have actually lost money.

“While smelting iron ore with a lower Fe content may affect costs — since more coke is usually required — the cost competitiveness of using higher Fe ore products, including pellets, is even more questionable,” he added. ...

Steel mills in China tend to use more iron ore pellets in their smelts, especially when sintering operations are shrinking as the chunks fed into the furnaces require more coke to be consumed than this raw material and pellets from sintered iron ore, Mysteel Global notes.

Mysteel's data also suggests a similar trend. As of November 17, at 64 factories regularly polled by Mysteel, the share of pellets in kiln feedstock fell to 15.67%, the lowest since mid-July 2020. At the end of September, this ratio was about 17.5%.

Adjustments by blast furnace manufacturers have led to a drop in the price premium for imported iron ore pellets amid weaker demand, although pellet inventories in Chinese ports remain low, the trader said.

As of November 23, Mysteel's premium for iron ore pellets with 63% Fe versus 62% Fe in Australian fines dropped to $ 42.05 per tonne, the lowest since October 20. Earlier this month, the premium soared to a nearly three-year high of $ 55.4 per tonne. dmt on November 4th.

According to Mysteel, as of November 18, total pellet stocks at 45 ports in China stood at 3.77 million tonnes, still relatively low over the past three years.

Meanwhile, with weakening demand for pellets, demand for both domestic and imported iron ore concentrates also declined, the trader noted, leading to a recent drop in their prices.

“But we still have imported concentrates on hand. After all, there will usually be frequent production restrictions in northern China during the winter season, so concentrates and pellets still have a chance, ”he explained.