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December, 12th 2017

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DEC 05
15:12

Iron ore steadies over $70/tonne

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Seaborne iron ore prices were firm but futures showed some signs of settling back on Tuesday amid profit-taking on steel futures markets. A strong preference for high grade ores and strong steel prices are still supporting the market however.

The Kallanish index for 62% Fe Australian fines gained $0.32/tonne to $70.26/dry metric ton cfr Qingdao, topping $70/t for the first time since September. 170,000 tonnes of Brazilian Blend traded on globalORE at a floating price. On the Dalian Commodity Exchange May iron ore settled up CNY 3/t at CNY 545/t ($82.35/t), while on the Singapore Exchange January 62% Fe futures settled down $1.55/t at $69.74/t.

The preference for higher grade fines has been a key support to iron ore prices. A Deutsche Bank report recently noted that iron ore stocks held by BHP Billiton and Rio Tinto are equivalent to around ten days of production. For FMG, which produces lower grade ores, stocks have grown to around 39 days of production.

FMG’s product is trading at a significant discount to higher grade product such as PB fines, which has become the market benchmark. FMG recently increase the discount for its product from 62% Fe indices to 29% for its contract customers. But on the spot market the discount has already widened well beyond 30%.

Whether this trend continues through the coming year remains to be seen. FMG hopes this is just a short term factor caused by winter restrictions forcing steelmakers to boost productivity. Rio’s head of iron ore Chris Salisbury recently told Australia’s ABC News however that the trend would continue because China now has larger blast furnaces and a greater focus on reducing pollution.