LAUNCESTON, (Australia): Spot iron ore prices are now lower than the depths plumbed during the early part of the global coronavirus pandemic last year, and market dynamics are yet to signal any recovery in top importer China. An indicator of the state of the market has in the past been the differences between the various grades of the steel-making ingredient.
In times of strong demand, the lower grade 58% iron ore tends to outperform both the benchmark 62% and the high-quality 65% grades. This is because steel mills in China, which buys almost 70% of global seaborne iron ore, try to produce as much steel as they can by running their plants at high levels of capacity utilisation.
However, when steel demand weakens, as is currently the case, the mills tend to switch to using higher-grade iron ore in order to maximise the amount of steel produced from as small a quantity of raw inputs as possible. The current pressure to conserve power in China amid a shortage of domestic coal ahead of the northern winter, also means steel mills will try to produce as much steel as possible while conserving energy.
This dynamic is reflected in the current spot prices, with 65% ore performing better than the lower quality material, notwithstanding that all three main grades have seen prices plummet since the record highs reached in May. High-grade 65% iron ore, as assessed by commodity price reporting agency Argus, ended at $111.35 a tonne on Monday, down 58.1% from its all-time high of $265.80 on May 12.
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