Cheaper iron ore finding plenty of buyers in China, Miner says

Low-grade iron ore that has fallen out of favor with many of China’s steelmakers is still in demand as mills keep buying the cheaper product, according to a junior Australian supplier.

BCI Minerals Ltd. is selling all it’s lower-grade product at normal rates, Chief Executive Officer Alwyn Vorster said Thursday in an interview in Perth. “Mills are still buying, demand is there,” he said. “There is not a major change in which mills are buying.”

Chinese mills switched to higher-quality steelmaking ingredients as part of a drive to maximize output amid high prices and to curb emissions. Grade premiums may narrow as producer’s profit margins weaken, according to Liberum Capital Ltd., while Citigroup Inc. argues the preference for high-grade iron ore may be structural change for market.

Vorster expects the discount for lower grade ore to continue. “We work on the basis that we need to prepare for this to be longer term,” he said. “For the rest of this year we have to forecast and budget that it is a structural change.”

Benchmark spot ore with 62 percent iron content was at $67.25 a metric ton on Wednesday, while the higher-quality supply with 65 percent was at $84.00, a $16.75 spread, according to Mysteel.com. The price difference between the two grades, at its highest in the past year, was $25.25 in September.

Mills are facing declining profit margins, China Iron & Steel Association vice chairman Li Xinchuang said in an interview in Perth. They “ want to pursue profits and they cannot lose money,” he said. “When premiums are too high they will buy more low grade ore.”

Source: BLOOMBERG