High-grade iron ore could spike to US$100 per tonne as China intensifies a clampdown on pollution by restraining industrial activity, adding further momentum to a trend that has reshaped the global market over the past few years and driven buyers in Asia’s top economy to seek out better-quality material.
After sinking in March, top-quality ore with 65 percent iron content gained every month, hitting US$91 per tonne on Friday and keeping it in positive territory this year even as global trade frictions mounted, Mysteel.com said.
In contrast, benchmark 62 percent ore has flatlined in the US$60s and is down 14 percent. The divergence has exploded the gap between the two.
“Short-term spikes to this level are entirely possible in response to Chinese production and policy announcements,” said Paul Gray, vice president for iron ore markets at Wood Mackenzie Ltd, referring to the US$100 mark for top-grade prices.
While Wood Mackenzie’s view is that high-quality ore will not trade in three figures on a sustainable basis, spreads are expected to remain wide.
In a market characterized by extraordinary quantity — global iron ore shipments top 1.6 billion tonnes each year — the sustained push for quality among buyers stands to benefit top miners Rio Tinto Group and BHP Billiton Ltd in Australia, as well as Brazil’s Vale SA as it brings on new high-grade deposits.
After imposing unprecedented curbs on plants last winter, China is ratcheting up the pressure, expanding the area that is to be affected by production restrictions and cutting capacity in Tangshan, a key steel-making hub.
“There’s been some structural shift that seems to be a preference for higher grade,” Iron Ore Research Pty director Philip Kirchlechner said, adding that costlier coking coal and elevated mill margins are also driving the trend.
“The premiums, they will not be reduced: I will expect the premiums for high-grade ore to be around the current levels and not decline,” he said.
Using higher-content ore — and supplies with lower levels of impurities, especially alumina — enables mills to produce more steel while cutting back on pollutants. Policymakers in China are stepping up their environmental push and this month announced a three-year masterplan to intensify that push.
The resilience of iron ore compared with other commodities was yesterday in view as copper, nickel and zinc lost ground in London as trade concerns mounted, while SGX AsiaClear iron ore futures rose.
The benchmark SGX iron contract was 0.3 percent higher at US$63.65 per tonne, up for the fifth day in six.
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