Prices6 Jun 2018 06:37
S&P Global Platts data showed the 65% Fe index has moved higher in premiums over 62% Fe IODEX since February on an equivalent iron basis.
On Friday, Platts assessed IODEX at $64.70/dry mt CFR China, with 65% Fe at $86.70/dmt, indicating an adjusted iron premium of over 28%, close to a peak seen in the relative premium seen last October.
Vale, Brazil's largest iron ore miner, expects China's raw material quality drive to be "a permanent, structural industry shift to a tiered market", the SGX said.
"Its high quality iron ore (65% Fe product) now saved mills on average $19/dmt in costs and added 20% productivity versus low grade 56% Fe ores."
Industry consultant David Trotter, a former executive at Anglo American's iron ore marketing group, said Chinese blast furnaces seeking productivity sought a **** optimum of 62% Fe-type ore, achieved by blending low grade with high grade at a premium.
"He [Trotter] demonstrated the top six ores in the market would retain their value-in-use (VIU) benefit, but below this water line (at BHP's Yandi around $65/mt) all other ores had to compete on supply/demand basis down to the cheapest at $38/mt," the SGX said.
"This explained steep discounts for low grade ores, even though their VIU was unchanged. Iron ore was thus finally 'de-commoditizing'."
With China's economic and steel slowdown, slower than earlier anticipated, according to China watchers at the event, and more iron ore volumes lost as the year passes, the market balance was tighter.
"The market has lost 30 million-40 million mt of annualized oversupply for 2018 after exits of lesser miners, India's Goa mining ban, BHP's output downgrade, and Rio Tinto's IOC supply cuts," the SGX said.
The China-led Belt & Road Initiative (BRI) and related infrastructure projects were expected to support steel-related demand at a compound rate of 1.7% out to 2026, according to BHP's estimates, SGX said.
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