Brazilian mining firm Vale settled its October-December blast furnace (BF) and direct-reduction (DR) pellet premiums much lower than the third quarter, as a weak economic outlook and higher costs weigh on consumer price expectations.

 

Vale's fourth-quarter BF pellet premium was concluded with at least one customer in north Asia at $68/dry metric tonne (dmt) to a 65pc index, down by $20/dmt from the previous quarter, while the DR pellet premium settled at $75.60/dmt to a 65pc index, down by $19.40/dmt.

 

The fall in premiums has not come as a surprise as weak demand continues to delay settlements for third-quarter pellet premiums, particularly among Japanese mills. The tightness in the DR pellet market has meant that customers have largely accepted the proposed DR pellet premiums, but there has been more pushback on BF pellet premiums.

 

"The weaker demand for pellet globally was the main driver for dragging down pellet premiums. Not just Asia, but Europe and south America all saw lower than expected pellet demand," an international trader said. "Demand for BF pellet in particular is much weaker than the DR grade."

 

The bearish outlook in Europe has meant that few expect these latest settlements by Vale to give any impetus to European mills to move forward with their own ongoing third-quarter pellet premium discussions.

 

"I really don't think so. The premiums are still too high and as we know in reality the premiums are closer to $55/dmt," one Europe-based trader said. Excess stocks of non-Tubarao pellet were available in the Asian market at a premium of $55/dmt earlier this month.

 

Vale has settled its DR pellet premium for the fourth quarter while discussions for the BF pellet premium are protracted in the face of buyer reluctance, market participants said. A north Asian mill with strong pellet demand may have been the first to accept the premiums, one trader said, noting that the mill had received 3mn t of pellet in the first half of this year, equivalent to its full-year receipts in 2021.