[ferro-alloys.com]Continued heavy rains in Brazil are expected to further tighten supply of Brazilian low alumina iron ore, with market sources pointing to delayed shipments of cargoes for March and April.

Although the total iron ore volumes out of Brazil for the week of February 24 to March 1 had improved by almost 19% to 6.74 million mt from the previous week, market sources said they expected a dip in volumes once again for this week due to heavy rains impacting the loading rate at both Northern and Southeastern ports.

The average weekly volumes of iron ore exports from Brazil for the first nine weeks of 2020 were at 5.39 million mt in comparison to the weekly average for 2019 at 6.97 million mt.

Several Chinese end-users confirmed that their contracted Brazilian volumes for March and April were delayed due to the monsoon season, leading to portside Carajas fines seeing supported demand. Market sources also pointed to attractive portside reselling margins as supportive of seaborne values.

The sale of a 85,000 mt cargo of Carajas fines loading in March 25 to April 3 from Vale's Teluk Rubiah terminal on Wednesday sparked speculation over the shortage of available Carajas spot supply, as well as the possibility of excess Carajas volumes at Teluk Rubiah on weaker import volumes from Tubarao.

Carajas fines has been traditionally sold from Vale's Ponta da Madeira port which it uses to ship out its Northern System products. In 2019, Vale sold its Carajas fines out of both Teluk Rubiah and Sohar, in the aftermath of the Brumadinho dam collapse, with market sources pointing to leftover Carajas fines at these distribution points due to insufficient Southern system products for blending purposes.

Although current low levels of steel margins were expected to reduce utilization of high grade fines, many large end-users have a certain inflexible need for Carajas fines, leading to continued procurement and usage despite the current economic state.

The current spread between the 65% and 62% index as assessed by S&P Global Platts was at $15/dmt Thursday, in comparison with the 2019 average of around $11.07/dmt, indicating that the current supply tightness had outweighed thinning end-user seaborne demand as a result of the coronavirus outbreak.

Vale's Brazilian Blend fines (BRBF) from Teluk Rubiah comprises of a mixture of Carajas fines from the Northern system and Southern system low grade fines which are then blended at the port before being exported. While previously the blending ratio was around 50-50, market sources said that the ratio has been changed to around 70-30 for Carajas and Southern System fines, to mitigate the higher contaminant levels and lower volumes from the Southern System due to the restrictions on wet processing.

Export data seen by Platts showed 0.92 million mt of iron ore being shipped to China from Teluk Rubiah in February, and 0.7 million mt in January, compared to the 2019 monthly average of 1.45 million mt, leading to expectations of supported premiums for BRBF in the near future. The data also showed zero shipments arriving in January from Tubarao, indicating a possible shortage of Southern System fines at Teluk Rubiah for blending purposes.

The same data showed around 0.21 million mt of iron ore arriving in Vale's Sohar distribution port from Tubarao where it has pelletizing facilities in February 2020, a drop of just under 49% from January. Improving Middle Eastern demand for direct reduction pellets recently was also seen by some traders as placing further strain on available volumes out of Tubarao to Teluk Rubiah.

Southern mills have left their sintering blends largely unchanged and given their usage of BRBF, resale cargoes are likely to fetch higher premiums closer to April when downstream steel demand is expected to recover, an international trader said. The general lack of alternatives like domestic concentrates for Southern end-users and the different sintering qualities of alternative Brazilian medium grades may mean that existing buyers are likely to prefer paying higher premiums over altering their sintering blends, the source said.

(S&P Global Platts)

• [Editor:王可]