Falling demand outside of China will hit the pellet trade

The coronavirus pandemic has caused a sharp decline in global iron ore pellet trade, coupled with a slump in steel demand, which has triggered an aggressive reduction in steel and pig iron production outside of China in recent months.

In the EU and Japan, which are the main importers of iron ore, steel production fell 18% -19% year-on-year between January and September amid a wave of declining blast furnace capacity due to reduced processing demand.

This reduction in steel production resulted in a significant drop in the pellet trade. In January-August, pellet imports by Japan and South Korea fell by 38% and 42%, respectively, on an annualized basis, which totaled 4.2 million tons, while pellet imports to the EU fell by 29%, or 7 million tons, more. the same period.

The diminished focus on improving blast furnace productivity during the recession resulted in reduced demand for pellets outside of China. In addition, pellets are generally more expensive compared to small and lump iron ores. Therefore, steelmakers are looking to reduce the use of pellets as a cost-cutting measure in a downturn. Blast furnace steel production dominates in East Asia and Europe, where producers have the ability to regulate and optimize the iron ore grade between agglomerated fines, lumps and pellets.

Brazil is the world’s largest exporter of pellets, despite a decline in supplies from 54 million tonnes in 2015 to 27 million tonnes in 2019. Key to this was the disaster of the Fundão tailings dam at the end of 2015, which forced Samarco, the largest pellet producer, to cease operations. Another pellet supply crisis occurred in 2019 after Vale’s Brumadinho tailings dam collapsed, killing several people. In the first nine months of 2020, Brazilian pellet exports fell 36%, or 6.6 million tonnes, compared to the same period last year.

Pellet trade in North America is also in a contractionary mode, as aggressive steel production cuts have reduced demand for iron ore in the region. While US pellet exports fell 10% year on year in the first eight months of 2020, strong demand from China boosted pellet exports from Canada by 3.3%. In the Middle East, Bahrain pellet shipments fell 45% year-on-year, or 2.8 million tonnes, in the first eight months, while a correspondingly robust increase in Iranian steel production reduced pellet exports by 2 million tonnes over the same period. same period.

As for 2021, S&P Global Market Intelligence expects that the recovery in global economic growth will trigger a significant improvement in pellet demand outside of China. This will be facilitated by increased production of blast furnaces in Europe, Japan and India and the restoration of DRI production in the Middle East.

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