Get used to low-grade iron ore discounts, WA miners told as China clears the air

6th Aug 2018

CITIC Pacific Mining boss Chen Zeng says he sees discounting for lower-grade iron ore in China as a fundamental change in the market because the Government’s push to reduce pollution would “go on forever”.

Queried at a WestBusiness Leadership Matters function yesterday on the growing spread of iron ore prices across varying grades, Mr Zeng said it had become a credibility issue for the Chinese Government to provide clean air and water for its citizens.

He said the Government was determined to implement the right policy, stick to it and see the results.

“So I cannot see this as a reversible trend, no matter whether it’s five years, 10 years,” he said. “Going forward there will be a very consistent policy in that regard.”

The Chinese Government’s recent crackdown on pollution has forced inefficient steel mills to close and those remaining to seek higher-grade inputs to reduce emissions.

The strong demand for higher-grade ore has led to big premiums for ore above the 62 per cent benchmark price and steep discounts for lower-grade ores.

However, some analysts argue the phenomenon is a cyclical one and will moderate when prevailing high profit margins for steel producers ease.

CPM’s $16 billion Sino Iron project in the Pilbara produces a 65 per cent magnetite concentrate product, which benefits from the high premiums being paid.

But Sino Iron continues to struggle to operate profitably because existing output is below its 24Mtpa nameplate capacity, the high cost of processing the ore and the steep royalties it must pay to tenement holder Clive Palmer.

Mr Zeng said there was a carbon dioxide emission saving of 108kg for every tonne of steel produced from magnetite ore compared with hematite fines.

He said the spread between 65 per cent and 62 per cent ore ranged from 5-15 per cent in the four years to mid-2016, but since 2017, it had averaged 25 per cent.

“It is obvious, going forward — grade is king,” he said.

“Given this shift in the market, Sino Iron and the development of Australia’s vast, largely untouched magnetite deposits will help enhance the long-term international competitiveness of our local industry, hedging WA from the risks associated with a lower-grade/high-volume focus.”

Source: THE WEST AUSTRALIAN