Chinese demand for low-grade iron ore pushes FMG shipments to record levels
Low margins at Chinese steelmakers so far in 2023 have boosted demand for lower-grade iron ore products, which has led to record iron ore shipments from Australia's FMG in its financial year to June 30, sources told Fastmarkets this week
The Pilbara, Western Australia-based miner’s flagship low-grade Super Special and Blended Fines brands are iron ore fines under 60% Fe and FMG shipped 192 million tonnes of iron ore in the year to the end of June, according to the company’s latest operational review published on July 27.
FMG chief financial officer Christine Morris said in a conference call on July 27, that:
Demand for Fortescue’s products has remained strong all year. This is the result of steel mill profitability as well as the consistent quality of delivered product and the low variability of Fortescue ores.
FMG’s annual shipments achieved the top end of market guidance and the company increased its shipment guidance for 2024 to 192-197 million tonnes – including about 7 million tonnes from its new magnetite project, Iron Bridge.
Mill demand for low-grade fines at Chinese ports has been increasing this year due to their cost-efficiency and the availability of supplies, with the priority for most mills being controlling production costs, despite overall iron ore prices declining in comparison with 2022, sources told Fasmarkets.
Fastmarkets’ iron ore 62% Fe fines, cfr Qingdao index averaged at $117.91 per tonne in the first half of 2023, down by 15.5% year on year from an average of $139.61 per tonne in January-June 2022.
“The monthly discount for low-grade fines from FMG narrowed in the first five months [of 2023], after sources saw more portside low-grade deals,” a Shandong-based trader said.
A Beijing-based trader said the discount level for low-grade iron ore fines was usually adjusted based on mill profit margins, which is the key driver for low-grade product demand.
“If the low-grade iron ore fines discount level narrows further, it will dampen mill margins and, in turn, impact procurement demand for specific brands. [And that] will push miners to adjust their discounts for the next month,” the trader added.
The monthly discount level for FMG’s low-grade fines is unchanged for August, several sources told Fastmarkets.
“The low-grade fines with narrower discounts might lose competitiveness with alternative low-grade India fines at China’s ports,” a Shanghai-based seller said, “and there is also uncertainty about changes to demand amid China’s crude steel production cuts in the next few months.”
The competitiveness of low-grade fines in recent months has been less significant than earlier this year, however, a second Shanghai-based trader said, and it might be difficult to narrow the discount level to the 62% Fe iron ore fines benchmark in the short-term because mill margins have been recovering.
But some steel mills are less sensitive to the stable discount level for low-grade fines after acclimatizing to these products in their sintering blending ratios.
And low-grade fines prices might be more significant following the crude steel production cut in the second half of the year, a second Shanghai-based trader said.
“It’s more cost-efficient to use low-Fe content products to reduce hot metal output compared with shutting down a blast furnace,” the source added.
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