Rising Demand of Low Grade Iron Ore from Chinese Mills on Falling Steel Margins

Chinese mills are heard to have increased preference of low grade iron ore fines on declining steel margins over decline in steel prices.

According to the sources reported to SteelMint, recently a deal for Indian origin Fe 57% fines was booked for China at around USD 39- 40/MT, CFR China. This is equivalent to 39-40% discount on index value. Spot iron ore fines index is around USD 74.15/MT, CFR China for Fe 62% grade.

Another cargo from Goa reported, for Fe 62% fines sold to China at around USD 67/MT, CFR China.

Why Low Grade Iron ore Demand Increased in China?

1. Declining Steel Margins-: Steel prices are decreasing from the last few weeks led to reduction in steel margin. HRC in the domestic market of China witness significant drop amid decline in the futures market. Currently, domestic HRC is assessed at RMB 3,800-3,820/MT (ex-works) in Eastern China, down by RMB 220/MT against previous week.

2. High Raw material cost-: High-grade fines are trading at a high rate, therefore, mills prioritized lowering production costs. Brazilian fines with low alumina are still trading at very high prices making difficult for the cost of raw materials effectiveness. Fe 65% Brazilian fines are assessed at around USD 94-95/MT, CFR China.

3. Unclear Winter Production cuts in China-: There is uncertainty prevailing in few Chinese provinces regarding steel and sinter production cuts in the winter season.

Indian exports to China up 90% in Oct'18

China continued to be the largest importer of Indian iron ore in Oct'18 and imported 0.22 MnT in Oct'18, up 90% as against 0.12 MnT in Sep'18. Fomento Resources exported 77,000 MT iron ore in Oct from Mormugao port.