Iron ore grade war boosts Vale as Evy Hambro exits Fortescue – by Peter Ker(Australian Financial Review – February 28, 2018)

Australian iron ore exporters’ geographic advantage over South American rivals has been largely eroded by China’s growing preference for higher grade iron ore, according to the giant Brazilian miner that stands to benefit most from the trend.

Vale’s claim to now be matching the profit margins on each tonne of iron ore sold to China by the likes of Rio Tinto and BHP comes as Evy Hambro’s BlackRock World Mining Trust confirmed that it had exited Fortescue Metals Group’s share register because of the wider price discounts being applied to Fortescue’s iron ore

The average iron content of Vale’s ore has recently risen to 64.3 per cent with the introduction of the high-grade S11D mine in Brazil’s Carajas region, and the arrival of that mine has coincided with Chinese steel mills paying a premium for higher grade iron ore as they seek to improve environmental efficiency.

BHP and Rio typically sell ores with 61 per cent and 62 per cent iron content respectively, and Vale said it had received a premium of about 11 per cent above the benchmark 62 per cent iron ore index during the final three months of 2017.

BHP and Rio have traditionally been more profitable suppliers of iron ore to China than Vale because Australia’s geographic proximity to the Middle Kingdom meant freight costs were lower than from Brazil.

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