Iron ore has seen a huge spike in pricing, soaring $5.61 to $92.23 per tonne on Tuesday, Feb. 14 for a 30 month high.
Iron ore stockpiles are up at ports but not the high grade ore that is being sought by Chinese steelmakers. Efforts to reduce pollution and curb overcapacity has led to the closure of smaller and inefficient mills in China, driving up demand for high grade ore, said Rio Tinto CEO Jean-Sebastien Jacques in comments to the Financial Review.
“It is absolutely clear that the Chinese government is pushing hard to restructure the high polluting blast furnaces and therefore reduce capacity but when you look at what would happen, it would remove the low productivity, highly polluting blast furnaces in order to drive the productivity of the best blast furnaces, and in that sense it could be an opportunity for us because we would see a switch from low grade iron ore to higher grade iron ore,” he said.
“Currently the utilisation rates across all the blast furnaces is around 70 per cent, but as and when they remove the smaller ones, the high polluting ones, they will push harder on productivity of the other ones…that is where you have got to bring a higher quality of ore.”
Cliffs Natural Resources CEO Lourenco Goncalves expressed similar sentiment during the Cliffs Q4 earnings call.
Said Goncalves, “We have also encountered some new dynamics in the Chinese market, between the improved profitability of the Chinese steel mills, the elevated prices of coking coal, and most importantly the increasingly serious crackdown on pollution sponsored by the Chinese Government, demand for higher-grade iron ore has risen significantly. As a consequence, low-grade 56% iron content ore is having a tougher time to find a home with good clients. This is evident as we observe the wider spread between the 62% Fe reference price in the price of low iron content ore.”
Goncalves said he expects iron ore pricing to remain strong throughout 2017.
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