Chinese steel mills return to high quality iron ore

Chinese steel mills are increasing their interest in high-quality iron ore despite record high ore prices, managers and traders say, as the recovery in profitability encourages mills to strive to improve efficiency and increase production.

At the end of 2018, steel companies were forced to cut costs by switching to low grade ore as steel margins declined amid record production. A spike in iron ore prices in early 2019, triggered by the catastrophic collapse of a tailings dam at the Vale SA mine in Brazil, also contributed to this transition.

But as China's economic growth accelerated in the first quarter and pollution control measures took effect, executives gathered at an industry conference in Singapore this week and said higher quality and higher ore prices are making a big return on the menu.

"This suggests that the industry is moving towards efficiency, productivity, cleaner methods, and therefore you need high quality iron ore."
“We have signed a large number of orders for steel products over the next three months and steel production is quite profitable,” said a purchasing manager at a mid-sized plant in China's leading steel province, Hebei. “It's time to buy more high quality ore,” he said, refusing to be identified as he was not authorized to speak to the media.

Beijing's anti-smog campaign is also helping.

China's Ministry of the Environment last week ordered mills to target ultra-low emissions to improve air quality, which means modern equipment and higher quality iron ore.

“In the longer term, due to changes in the Chinese steel industry ... and also due to tighter emission controls, we see a very significant pool of demand and preference for high quality iron ores,” said Siddarth Aggarwal, manager of iron ore market analysis. and the black trade at Anglo American.

Prices for 65% iron ore for delivery to China hit a five-year high of $ 110.5 a tonne on Thursday, while its premium to the 62% ore benchmark rose to five-month highs.