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Sweden's LKAB Q3 pellet sales rise to record volume, premiums fall

Increase font size  Decrease font size Date:2020-10-30   Views:80
Swedish iron ore pellet producer LKAB increased third-quarter iron ore sales to a record 7.6 million mt, up 38% year on year, while pellet premiums were lower and hit operating profits.

Sales comprised 82% of pellets in Q3, up from 79% a year earlier, the Lulea-based company said in an update Oct. 28.
State-owned LKAB said quoted pellet premiums were $27/mt lower than Q3 2019, with lower spot pellet premiums in China. China has become a more important sales market for Atlantic pellet producers as demand shifted from contract customers owing to low steel and scrap prices earlier in the year.

Even with Q3's average spot iron ore fines price rising to $118/dry mt CFR China, up 15.7% year on year, "significantly lower premiums for highly upgraded products resulted in a negative price effect when compared year on year."

"Iron ore prices continued their strong upward trend while premiums for higher grades were squeezed during the quarter," LKAB said. "The assessment remains that iron ore prices will gradually decrease in the fourth quarter."

The Platts Atlantic contract pellet premium trended lower this year, averaging just below $29/dmt in Q3 with quarterly premiums at all-time lows. The assessment averaged at $56/dmt in Q3 2019, as premiums slipped from record highs earlier agreed for 2019.

The fall is down to the impact of weaker steel demand, lower scrap prices and high iron ore base prices, which squeezed margins. Increased demand for sinter-feed concentrate and other high-grade iron ore products along with idling of furnaces hit pellet consumption earlier this year.

LKAB said iron ore output fell to 6.8 million mt in Q3, from 7.3 million mt a year earlier, due to maintenance shutdowns with additional precautions to combat the coronavirus and to recover from earthquake damage in May to the Kiruna mine.

LKAB's group operating profit fell to SEK2.96 billion ($336 million) in Q3, from SEK3.13 billion in Q3 2019, with January-September operating profit at SEK8.03 billion down from SEK9.74 billion a year earlier. The company reported a negative effect of SEK 3.14 billion over January-September from iron ore prices including the impact of hedging, compared with the prior year.

LKAB said the Kiruna underground mine in northern Sweden, its largest iron ore complex, was operating at 70%-80% capacity and "a substantial amount of inspection and repair work" is needed to restore the operation to full capacity.

Q3 deliveries were not affected by the loss of production at Kiruna, it added.

LKAB supplies pellets to steelmakers in Western Europe and globally, including to SSAB, in which LKAB is the top shareholder.

LKAB is boosting use of biofuel in operations, including for processing iron ore pellet supplied to the HYBRIT direct reduction iron, hydrogen pilot venture with SSAB and Vattenfall in Lulea.

Trials involving replacing fuel oil with pulp-based tall oil for a pelletizing plant in the Malmberget complex have had good results, LKAB added.

"Trials with fossil-free fuels such as bio-oil, hydrogen and plasma have begun and indicate good results, but further tests are yet to be conducted," LKAB said.

Related podcast: Energy Transition in the time of COVID-19

LKAB said the disruption to coal production at two pelletizing plants in Kiruna during Q3 substantially increased the use of fuel oil as a substitute for coal.

In September, LKAB began using biodiesel with a 30% admixture to help meet emissions reductions for road transport.

LKAB has started tests at the ReeMAP pilot facility, which aims to use fossil fuel-free processes to extract rare earth elements and phosphorus products from iron ore tailings and waste and produce critical raw materials such as rare earths.

LKAB is a partner in the EU's European Raw Materials Alliance, which seeks to increase self-sufficiency in critical raw materials. ReeMAP may allow LKAB to produce as much as 30% of the current EU requirement for rare earths, it said.

LKAB is exhausting its developed mine haulage areas, and needs to secure further area. The company's Sustainable Underground Mining project is developing an integrated, efficient, carbon-free mining system with Sandvik joining SUM in September as a new partner, while the partnership with Volvo Group is transitioning into other areas of collaboration, LKAB said.
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