Australia’s biggest iron ore miners are set to benefit from a “fundamental shift” in China’s demand for higher grade iron ore, which has sent spot prices rocketing and could keep them high for some time yet.
The benchmark iron ore price reached a 30-month high of $US92.23 per tonne on Tuesday, and the commodity’s strongest start to a year since 2014 is fuelling expectations for rising dividends from mining companies and dramatically improved revenues to the federal and Western Australian government.
The timing of the rally is particularly good for WA Premier Colin Barnett, who will face voters at an election in less than a month and can expect iron ore royalties to deliver billions of dollars of extra revenue into the state’s struggling finances over the next few years.
Executives from Rio Tinto, Fortescue and Cliffs Natural Resources have all noted in recent days that Chinese customers have been increasingly seeking ore with high iron content; such as the 62 per cent iron product that Rio sells from WA and the 65 per cent iron product Vale sells from the Carajas region of Brazil.
Rio chief financial officer Chris Lynch said this week there was a “fundamental shift going on in China” as the middle kingdom strives to ensure its steel mills are more efficient and less polluting.
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