Canadian pellet emerges as Samarco alternative

OREANDA-NEWS. January 11, 2016. Iron ore pellet buyers are increasingly turning to Atlantic Canada — and to a lesser extent Sweden — to source feedstock since Brazilian producer Samarco halted operations in November last year in the aftermath of a tailing dam collapse.

The shift in global iron ore pellet trade patterns potentially offers a lifeline to regional mining enterprises and the dry bulk freight market.

At least three spot Capesize vessels have already been booked this month from Sept Iles (Seven Islands) in Quebec, Canada, with more under discussion, while one was booked at the end of December from nearby Port-Cartier to Japan, with at least one additional cargo destined for China still under discussion.

Sept Iles typically made between two and five Capesize iron ore fixtures a month last year, predominantly bookings by Rio Tinto to China.

The increase in available cargoes is the result of the closure of Samarco, which has forced steelmakers to source raw materials elsewhere, particularly Rio Tinto subsidiary IOC's operations in Quebec.

Samarco shipped 4.14mn t of pellet to China and 5.65mn t to the rest of Asia in 2014, accounting for a combined 39pc of its output for the year.

Brazilian mining group Vale, a Samarco joint-venture partner, is likely to increase its own pellet output to compensate for the shortfall in Samarco output this year, but it appears that Asian buyers have turned to Canada to fill the short-term gap in Brazilian availability while they wait to see if Vale will ramp up production. In addition to IOC, which produced 7.3mn t of pellet in the first nine months of 2015, the other main Canadian pellet exporter is ArcelorMittal, which operates a pellet plant and private port at Port-Cartier.

Rio Tinto booked the Capesize Q Gayle, loading 16-25 January, and the Eva N, loading 20-29 January, at \\$10.75/t to Qingdao while CSE booked an unnamed SwissMarine ship to Kaohsiung, Taiwan, at \\$11.40/t.

Six vessels — four Capesize and two Panamax — are scheduled to leave the Rio Tinto berths at Sept Iles in the next 10 days including the Q Gayle booked on spot charter. Of the remaining five, the three Capesize ships were booked on spot charters in the fourth quarter of last year and are likely to have been booked on spot charters again.

There have been more recent cargoes available from Narvik in Norway destined for Europe that market participants said are compensating European steelmakers for the Samarco closure. Samarco exported 5.27mn t of pellet to Europe in 2014. The new demand will provide some support to Swedish iron ore producer LKAB, which is under financial pressure and ships cargoes from Narvik.

An increase in shipments from Canada could help to drive up spot freight rates across the Atlantic and Pacific basins as any ship fixed on this route would be absent from the market for up to three months or more depending on the loading/discharge times and duration of the ballast part of the voyage.

This would sharply reduce the volume of available tonnage and draw vessels away from other routes in the Atlantic as well as the Pacific, forcing charterers to compete to secure ships.