Insight
Iron ore price spread between low and high grades to remain wide
*Please note that this report only includes an Excel data file if this is indicated in "What's included" below
Report summary
Since China started to rationalise its steel capacity in 2016, the price spread between low-grade and high-grade iron ore has widened substantially. In addition, low-grade ore discounts have become more sensitive to steel margins than to coke or coking coal prices. We have established a model to quantitatively explain why these trends are happening and how they will progress in the future. Based on the model results, we expect the long-term discount for low-grade Fortescue Metals Group Super Special Fines to be 24% and the premium for high-grade Vale Carajas fines to settle at 20%. Our forecast price spreads are narrower than today's spot spreads of more than 30%, but wider than the 10% to 15% price spreads that prevailed before China's steel supply-side reforms began in 2016.
Table of contents
- Executive summary
- Discounts and premiums for various iron ore grades
- Productivity isthe key driver of iron ore price spreads when steel margins are high
- Steelmaking costsbecome less of a factor determining iron ore price spreadsas steel margins rise
- Price spreads to narrow but remain wider than before China's steel industry rationalisation
- What about supply?
Tables and charts
This report includes the following images and tables:
- Discount of FMG SSF to PB fines (%)
- Premium of Vale Carajas fines To PB fines (%)
- Sensitivity of discount for FMG SSF to coke price and rebar price (%)
- Sensitivity of premium for Vale Carajas fines to coke price and rebar price (%)
- Ironmaking average productivity (tonne hot metal/employee-year) from various iron ore
- Rebar average productivity (tonne rebar/employee- year) from different iron ore
- The conversion cost (RMB/t hot metal) for low-grade ore is higher (April 2018)
- Low-grade ore requires more flux and more coke breeze in the sintering process (kg/t sinter)
- Low-grade ore consumes more sinter and coke in the ironmaking process (kg/t hot metal)
- FMG SSF discount may be sustained for the next two years and then fall
- Vale Carajas fines premium may be sustained for the next two years and then fall
- The changing composition of ex-mine seaborne supply
What's included
This report contains:
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