China to see resurgence of low-grade iron ore | 2024 preview

These changes are driven by the need to adapt to an uncertain market environment and a sluggish economy, especially with pessimistic steel demand from China's real estate sector

Chinese steel mills have continued to adjust their iron ore consumption ratios and procurement strategies this past year due to pressured margins, with mills applying the most cost-effective blending ratios for their sintering or blast furnace needs while also maintaining low iron ore stocks.

This approach is likely to result in a resurgence of the low-grade iron ore market in 2024, industry sources have told Fastmarkets.

Shifting procurement patterns in Chinese market

Chinese steel mills have been shifting their consumption patterns and procurement strategies for iron ore since the Covid-19 pandemic started affecting China’s economy, sources said.

Market participants noted that while China remains focused on recovering its sluggish economy, these consumption patterns are likely to continue in 2024.

Steel mills in China will likely continue to maintain a low iron ore inventory to deal with the uncertain market environment, a Hebei-based steelmaker source told Fastmarkets.

These mills preferred to buy in small quantities from the Chinese port-side market rather than large seaborne cargoes with long shipment periods, the steelmaker added.

“More Chinese buyers will also be interested in yuan-transacted prices of imported iron ore at the Chinese port-side markets,” a Shandong-based trader said.

Chinese mills will also continue to show a preference toward low-grade iron ore to save on costs, a Hunan-based steelmaker source said.

Most market participants believe that steel demand from China’s ailing real estate sector, which accounts for 40% of the steel demand in China, remains pessimistic in 2024.

Rather than purchasing high-grade iron ore to improve production efficiency, more steel mills will switch to low-grade iron ore to reduce costs and potential losses if steel prices were to remain weak, sources said.

“It is a lot easier for steel mills to change their blends to [include] more economical materials in blast furnaces with the advancement of blast furnace technology in Chinese steel mills,” a Singapore-based trader said.

High-low blends are more cost-effective than mid-grade fines

Chinese steelmakers have experienced a decline in profitability and even suffered losses throughout 2023, and this has led to a preference for more cost-effective blending ratios of iron ore this past year, resulting in resurgent demand for low-grade iron ore fines.

An Anhui-based mill source said the average prices of high-grade Carajas fines and low-grade Super Special Fines (SSF) at major Chinese ports were more relatively cost-effective than mid-grade Australian fines.

“Most steel mills are not active in raising hot metal output but mainly to keep the operation of blast furnaces, which could strengthen their demand for the most cost-effective blending ratio of raw materials,” the Anhui-based mill source said.

“We’re willing to trading some low-grade iron ore fines in the short term, mainly considering the slow recovery of major mills’ margins,” a Xiamen-based trader told Fastmarkets.

Several market participants said that the demand and prices for low-grade iron ore fines might be supported in the short term unless overall iron ore prices fall back following a decline in hot metal output.

A Shanghai-based trader said that with the narrowing discount of low-grade fines on top of a 62% Fe iron ore fines index, the cost-effectiveness of some Australia low-grade fines has been gradually reduced, and some steel mills may look for more cost-effective blending ratios with various low-grade fines from India, Brazil and Australia.

A mill source from southern China told Fastmarkets that low-grade iron ore fines prices have reached a relatively high level and it may be difficult for suppliers to further narrow the discount level of low-grade fines on top of the 62% Fe iron ore fines index in the short term, considering the overall cost-effectiveness.

Miners flex low-grade iron ore production volumes

Iron ore miner Rio Tinto expects production of its lower-grade SP10 materials to remain high in 2024.

A second Shanghai-based trader said that SP10-grade products are now highly accepted by the market, and when Chinese steel mills are not profitable, products with discounts would still have an advantage over other mid-grade and high-grade products.

Market participants expect additional sources of low-Fe iron ore from Australia to come online by the second half of 2024.

The Onslow Iron project, developed by MinRes in a joint-venture partnership with Red Hill Iron Joint Venture (RHIJV) partners Baowu, AMCI and POSCO, is expected to commence shipping its first product into regional markets in 2024.

The project is forecast to ship around 35 million tonnes of 56.5-57.5% Fe iron ore a year, with a mine life of around 30 years.

A representative from MinRes told Fastmarkets that the main export market for the Onslow product is expected to be China, with Baosteel an anchor buyer, procuring 50% of MinRes’ share of the Onslow product with the option of taking a further 25% under its offtake agreement.

A trader based in Ningbo said that the Onslow product is expected to be an alternative to SSF from Fortescue, providing the spot seaborne market with additional supplies of low-Fe material.

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