Top-grade iron ore with 65% iron content is selling at a record spread over ores with 62% and 58% ferrous content, while the spread between benchmark 62% ore and lower-grade 58% ore has risen to a four-year high.
High-grade 65% iron ore currently costs $66.50 per tonne more than 58% iron ore and $33.50 more than 62% ore, according to data from SteelHome, but is still attractive for mills as their profit margins have risen this year.
“Steel companies are chasing higher production now as they are profitable,” said a Shandong-based trader who refused to be named. “Demand for low-grade ores is not very good, we are not keen to take those products.”
Profit margins for producing hot-rolled coil products at mills in north China turned positive in March and earlier this month soared to 1,188 yuan ($183.14) per tonne, the highest since August 2018, and were at 827 yuan on Friday, according to data from Jinrui Capital.
Margins for steel rebar also swung to black in March and earlier this month climbed to their highest since April 2019, at 928 yuan a tonne, and were at 616 yuan on Friday, Jinrui Capital said.
Demand for high-grade iron ore, which produces more pig iron – an intermediate product between iron ore and steel – with fewer impurities than the same amount of lower grade ore, has been rising just as domestic stocks of top-quality ores decline in China.
A research note published by CITIC Futures on Sunday said port stocks of 62% Australian Pilbara fines and lumps in northern China have fallen below normal levels so far this year, while inventories of high-grade Carajas fines from Brazil have started to drop since mid-March.
“Steel mill profitability is very strong amid the rally in prices across regions, which will incentivise production and in turn demand for iron ore,” according to a Fitch Solutions report.
Appetite for high-grade iron ore in China was tepid in 2019-2020 as mills’ profits were squeezed by surging raw material prices and sluggish steel consumption. But a post- COVID-19 demand recovery has boosted the outlook for the sector.
China’s commitments to cut overall pollution and long-term plans to slash the sector’s carbon emissions will be supportive for mills’ profit margins. Steel accounts for 15% of the country’s carbon emissions, so government shutdowns of outdated plants and curtailments on high-polluting production are expected to persist and shift profits to the most modern producers.
Capacity utilization rates of blast furnaces at 163 mills across China have slumped below 80% since mid-March as producers in the top steelmaking city of Tangshan in Hebei province were urged to curtail output to reduce emissions.
Pig iron output in Hebei fell 4% in March because of the cuts but China’s total pig iron output last month jumped 11.6% on an annual basis as plants outside the province raised production.
“Plants in regions that are not subject to environmental curbs are improving iron ore grades to raise production,” said Li Wentao, analyst with Tianfeng Futures.
Source: Reuters (Reporting by Min Zhang and Shivani Singh; Editing by Christian Schmollinger)