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In recent quarters, high-quality iron ore has been favored in China due to the Chinese government's environmental protection policy and the urgent pursuit of maximum output by steel mills. Recently, low-grade iron ore that has been left out of the market for a long time seems to have signs of price recovery.
The data shows that with the increase in low-grade iron ore prices in October, the price of 58% grade iron ore has increased by 12% this year; the price of 62% grade iron ore has not changed much in 2018. The discount for medium and low-grade iron ore is decreasing, and the price difference between medium and low-grade and medium-high-grade iron ore has been reduced to some extent.
In recent years, as the Chinese government has been striving to curb pollution emissions, higher grade iron ore from Vale, BHP and Rio Tinto has become popular in the Chinese market; at the same time, FMG (Fortescue Metals Group), which produces low-grade ore, faces considerable development resistance.
This sparked a heated discussion among market participants: whether the transition is structural or persistent, or a cyclical phenomenon. The recent rise in the price of low-grade ore is the result of a combination of factors. Market participants believe that the high price of high-quality ore is one of the important reasons for the rebound of low-grade ore prices.
The data shows that last week's low-priced spot ore price was $64.80/ton, while the 62% grade benchmark price was $74/ton. The price of 65% grade iron ore reached US$96/ton, and it rose to US$98.55/ton in October, which is the highest price since September 2017.
An industry insider said that the current cost of molten iron production has risen to the highest level in three years, prompting steel mills to start controlling production costs. Steel mills usually reduce costs by adjusting the ratio of blended ore.
The average iron grade of iron ore shipped by FMG is generally less than 62%. The price of low-grade ore has increased by 13% in the previous quarter due to the recent increase in the use of lower grade iron ore by steel mills. FMG CEO Elizabeth Gaines said: "The lower grade iron ore prices have increased, indicating that our iron ore demand is starting to increase."
