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Alumina differentials reach lowest point in 2022

65% Fe-62% Fe iron ore index spread narrows to single digit

Expectations of returning demand for low alumina cargoes

Ongoing production cuts in China and planned blast furnace maintenance during winter have signaled the unlikely recovery of steel demand up to the end of 2023. The poor margins have reduced demand for low alumina iron ore cargoes.

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The deteriorating steel margins that started early-third quarter have kept procurement decisions solely on whatever cargoes are cheaper, crippling the demand for low alumina cargoes.

The China domestic hot-rolled coil margin and the domestic rebar margin were at minus Yuan 35.88/mt and Yuan 29.26/mt on Nov. 9, respectively, according to data from S&P Global Commodity Insights.

As a result, penalties for impurities like alumina have continued to freefall. Under the 62% Fe index, the lower-band 1%-2.5% alumina differential closed at $1.70/dmt Nov. 9, while the high-band 2.5%-4% alumina differential closed at $2.10/dmt, reaching its lowest point of 2022, S&P Global data showed.

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

Market participants that have low alumina cargoes like Brazilian Blend Fines and high-grade Carajas fines to sell said demand for them have been fairly muted, and even if there were bids, inquiries were far off from their expectations.

"The bids we have received are almost $1.50-$2/dmt lower than what we are offering, and it's been difficult trying to sell them away," an international trader source said.

With low 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/dmt.

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

"Mills, traders and the miner themselves alike are all trying hard to sell their BRBF and IOCJ cargoes," a China-based portside source said.

The spread between BRBF and the liquid, lower Fe content Pilbara Blend Fines was around Yuan 15/wmt, according to several sources.

"The spread between the two brands have narrowed a lot since earlier this year. It used to be around Yuan 50/wmt," a China-based portside trader said.

On Nov. 9, offers for BRBF on the east port were heard around Yuan 715/wmt, with some offers even lower at Yuan 705-710/wmt, prices negotiable. PBF was being traded at Yuan 687/wmt on the same day, sources said.

However, some market participants said if the spread between BRBF or IOCJ and the liquid PBF continued to narrow further at the portside, preference for such higher Fe content cargoes might return, with mills slowly making switches to the high-low grade fines combination from their current medium-grade fines blend.

"The current price difference between using a low-high grade blend and a medium-grade only combination in blast furnaces is just around Yuan 15/wmt more expensive. Theoretically speaking, if the spreads narrow further, we might see interest for cargoes like BRBF and IOCJ return again," a China-based trader source said.

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