Vale has increased pricing options for some of its
Southern System iron ore products for cargoes loading in January, customers said
Monday.
Vale prices its Southern System brands -- Standard Sinter Feed Guaiba or SSFG
and Standard Sinter Feed Tubarao or SSFT -- on a Platts 62% Fe Iron Ore Index
basis for the month of loading for its term customers. It typically offers
contract customers a discount for these materials that varies in response to
market conditions.
Contract customers of the miner said earlier this month they had been offered a
fixed $2/dmt discount for January-loading SSFG and SSFT fines, down from $3.50/dmt
in December.
They said the miner was now offering another pricing option; using the per 1%
silica and alumina differential published by Platts to set the discount. They
can also stick with the current discount set by the company that would be
subject to change quarterly instead of monthly.
The silica differential for 60-63.5%-Fe grades containing 4.5-6.5% silica
currently stands at $1.40/dmt and for 60-63.5%-Fe ores with 6.5-9% silica at
$1.65/dmt.
The alumina differential would be $0.50/dmt per 1% for the 1-2.5% range.
"The alumina content for both SSFT and SSFG material is typically less than 2%;
we are looking mainly at the silica differential to determine the discount
accorded to Southern System fines," said a steelmaker source in northeast China
that has adopted Platts indices to set the discount for its contract material.
The typical silica content for SSFG and SSFT typically falls in a broader range
of 5.5-7.5% and 6-6.5% respectively, Platts records showed.
Ores with a higher silica content require more coking coal and PCI to be added
in the steel-making process to mitigate the high silica content.
"Choosing a indice-linked pricing mechanism would save hassle for both buyers
and sellers in negotiating a discount every month," said a contractual customer
in central China. "An indice that is fluctuating in accordance to market
conditions is more accurate and robust than a fixed price discount that only
changes every three months."
SILICA CONTENT SEEN TO INCREASE
The source said many Chinese steelmakers had shifted to the indice-linked method
from the fixed price one as they anticipated the silica content of Southern
System fines would increase this year due to a gradual decline in iron content.
"There are expectations that the silica content of SSFG and SSFT may even reach
as high as 7% this year and that would denote more discount for these
materials," the source said.
It is unclear whether the pricing option based on Platts indices would be
extended to other Southern System fines such as sinter feed High Silica Guaiba
fines or SFHG, which has an exceedingly high silica content of more than 8%,
Platts records showed.
Sources said Vale typically offers its contract customers two pricing periods
based on the Platts 62%-Fe IODEX assessments -- a monthly average or a five-day
period before and after the date on which the NOR is issued at the discharge
port. The NOR method is the most common, sources said.
"If you chose the NOR method to price your Southern System fines, you will also
need to use the silica and alumina differential published on these dates to
determine your discount," said the steelmaker in central China.
An official from Vale's Singapore office declined comment on the new pricing
option Monday.
Source: Platts
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Iron Ore Discounts to China
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