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Low Grade Iron Ore Buyers

On 8 April 2010, the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters (CCCMC) has banned Chinese trading houses from importing low-quality iron (below 60% Fe). ThisCCCMC directive is reported in various international press articles (including Financial Times, Reuters, Steelguru, Mining Exploration News, DNA,, The Times of India). Official documents by CCCMC are not available online.According to The Times of India, on 27 May 2010, the China Iron and Steel Association (CISA) advised ore buyers at a conference to stop buying low grade ores. It is mentioned that no formal notification has been issued by CISA.This ban concerns mainly India, the world's third-largest iron exporter, as India's ore generally has an iron content of 55 to 58 percent (Financial Times, 8 April 2010).

low grade iron ore buyers


Discount levels for lower-quality medium-grade fines, such as MAC Fines and Jimblebar Fines, narrowed as Chinese mills became more cost-conscious amid subdued steel margins, according to spot trades tracked by S&P Global Platts.

Recently, MAC and Jimblebar Fines saw some buying interest return as thin steel margins prompted more Chinese mills to look for cheaper medium-grade fines due to cost factors. These two brands' differentials against the Platts 62% Fe index -- the spreads between their outright prices and the Platts 62% Fe index -- narrowed as a result.

MAC Fines supply have been rising since June as BHP's South Flank mine started production. Spot volume sold by BHP surged in June, spot trades tracked by Platts showed, weighing on its prices relative to the other medium-grade fines such as Pilbara Blend Fines, or PBF, Newman High Grade Fines and Brazilian Blend Fines.

Under pressure to keep steel furnaces running even when demand for finished steel products has come to a standstill, steelmakers across the world have turned to cheap, low-grade iron ore exported by India to keep costs under control and preserve margins.

Steelmakers need to keep their blast furnaces running at all times. If such furnaces remain idle, they tend to harden into a mass of solid iron which would need to be replaced with a new one, leading to huge costs. Therefore, the only way to minimise losses is to source cheaper grades of ore to keep the furnace running.

India mainly exports lower grade iron ore, with up to 58% iron content, to countries such as China, Japan, and South Korea. Export of over 58% iron content attracts 30% export duty and is, thus, widely used by the domestic industry.

According to industry experts, supply from these countries is likely to remain lower going ahead, and preference for lower grade iron ore may pave the way to more iron ore exports from India in the coming months.

Iron ore with 56-57% iron content, which India offers, is currently being sold at $55-$60 per tn in the global market. Among the major buyers of the Indian-origin ore is China, which accounts for 85%, while Japan holds a share of 5.3% and South Korea 3.1%. Oman, Turkey, and Nepal are the other key buyers of Indian iron ore.

China is set to snap up significant volumes of low-grade Indian iron ore in coming weeks, as Chinese steelmakers seek out cheaper raw materials to cope with meagre profits, said traders and analysts.

On November 19, India scrapped a 50% export tax on iron ore that been in place since May, and although the country is a minor producer compared with Australia and Brazil, cheaper ores are currently in hot demand.

"The restoration of Indian iron ore exports is definitely positive news to Chinese steel mills," said Niki Wang, managing editor for iron ore pricing at S&P Global Commodity Insights, adding that most mills were suffering a loss and seeking cheaper raw materials.

Chinese steelmakers have already increased the ratio of low-grade iron ore in their production to bring down costs, pushing up the price of the cheaper ores and narrowing the gap between high and low-grades to less than $40 a tonne this month.

China imported 33.5 million tonnes of Indian iron ore in 2021, including 6.9 million tons of iron ore pellet products, or about 3% of its total 1.12 billion tonnes of imports, according to S&P Global.

There is no duty levied on exports of iron ore with iron content less than 58% . The higher grade ore exports are taxed at 30 per cent. Recently, state-owned trading giant MMTC Ltd had floated tenders for exports of lower grade iron ore to be shipped through the ports of Paradip, Gopalpur, Haldia and Visakhapatnam. Revival in exports of lower grade iron ore fines is expected to ease the inventory at mine pit heads which are posing a serious ecological hazard. The phenomenon would also spur exports which are on a weak wicket since shipping higher grade iron ore was economically unviable because of the steep export tax of 30 per cent. Iron ore stock at mines heads has been climbing owing to fragile demand. By the end of FY18, the iron ore stockpile made up primarily by lower grade had soared to over 150 million tonnes. Around 80 per cent of the inventory was contributed by Odisha and Jharkhand.

In a previous article, I discussed the reasons behind the emerging iron ore bull market and the stocks that one could invest in to benefit from this macro trend. With iron ore trading at around $184 a ton, (a mid-point price of Platts 62% IODEX on 4/8/2011), more and more investors everyday are gaining an interest in this base metal.

As this interest increases, the market is beginning to see quite a few new mining companies spring up. For instance earlier this month we saw a Canadian IPO for an iron ore company in the Ukraine called Black Iron. Additionally, some iron ore firms are starting to attempt to develop deposits in relatively remote areas like Zone Resources (OTC:ZRESF) in Northern Canada. This article will look at some of the more technical aspects that an investor should consider when conducting their diligence on a firm in the iron ore sector. The goal is to give investors a few tools that they can use to make intelligent decisions about the positions they decide to take.

Iron ore is the second largest commodity market in the world behind crude oil, and is the main ingredient in steel. Generally, iron ore falls into two categories, hematite and magnetite. Hematite is a rich iron ore product with an Fe grade around 40-70%, depending on the deposit. Hematite is generally referred to as Direct Shipping Ore or "DSO" for short because it can easily be mined and beneficiated using a simple crushing and screening process before it's shipped off to a steel producer.

Hematite is characterized by a red rusty color, and is predominantly mined from the Pilbara region of Western Australia, and the Carajas mine in Brazil by the world's major iron ore producers: BHP Billiton (BHP), Rio Tinto (RIO), and Vale (VALE). Kumba Resources (OTCPK:KIROY) in South Africa is also a large exporter of hematite ore as well. Of note is that hematite is not often rigorously processed, and as such can often have impurities which can be costly for steel makers to remove. Final end products for hematite are generally sold as either lumps or fines. Lumps are larger than fines, and are preferred because they can be directly fed into a blast furnace. Fines, by contrast, cannot be fed directly into a blast furnace because they effectively smother the furnace. To reduce this smothering effect, fines must be sintered. Below is an example of how hematite ore is processed.

Platts Iron Ore Benchmark About a year ago, the world's iron ore markets shifted from annual contracts towards quarterly contracts. The shift has been monumental for the iron ore industry and has created a great interest in the pricing of iron ore. Today, Singapore and India are in the process of setting up a derivative market for iron ore, but the de facto spot price index is published by Platts called "IODEX", and by a Metal Bulletin referred to as "MBOI". These indices are updated daily. The Platts website has spot prices for both 62% Fe, and 63.5% Fe iron products. Below is a chart looking at the daily spot price for 62% Fe.

Click to enlarge: (Source: The important takeaway from the chart above is that the grade of the Platts Iron Ore Index is 62%, which means that ore below 62% will sell at a discount to the index, and ore above 62% will sell at a premium.

Additionally, the location of the firm relative to its buyer is an important consideration. For instance, the Finnish firm Northland (OTC:NRSRF) enjoys a considerable advantage over Canadian and Brazilian iron ore producers who ship to Europe. Below is an excerpt from a recent investor presentation from Northland Resources, which discusses the cost of different long term freight rates from common iron ore trade routes. (Source:

The iron ore spot price for high grade 62 per cent fines has plunged in the past two weeks from $US72.50 ($98.62) to $US63.74 in part due to a growing Chinese preference for lower-grade ores for steel manufacture.

Speaking at the International Mining and Resources Conference (IMARC) in Melbourne at the end of October, Fortescue chief executive officer Elizabeth Gaines suggested that the trade dispute between the United States and China would not dampen short-term iron ore demand in the Asian country.

This has led to increased demand for lower cost, low- and mid-grade iron ore fines, which puts Fortescue in a good position to capitalise with its 60.1 per cent low alumina West Pilbara Fines iron ore that it announced at a conference in Dalian, China in September.

The following iron ore mines are located in Brazil: Aguas Claras, Alegria, Alegria/ Germano, Brucutu, Capanema, Carajas, Casa de Pedra, Caue, Conceicao, Corrego do Meio, Corumba, Fabrica/Segredo, Fazendao, Feijao, Gongo Soco, Jangada, Mina do Andrade, Morro Agudo/Agua Limpa, Mutuca, Pico, Tamandua/Capitao do Mato, Timbopeba, Companhia Vale do Rio Doce (CVRD). 041b061a72


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