LAUNCESTON, Australia, Nov 28 (Reuters) – The premium Chinese steel mills are willing to pay for high-grade iron ore has widened in recent months, suggesting both a recovery in profitability and a desire to maximise output at blast furnaces.
Iron ore prices have fallen for the past two sessions, with declines on Wednesday linked to a sharp 9.9% drop in profits at China’s industrial companies, the fastest pace of contraction in eight months.
However, spot 62% iron ore for delivery to north China MT-IO-QIN62=ARG, as assessed by commodity price reporting agency Argus, is still up 10.2% from the 10-month low of $78.15 a tonne on Nov. 11, ending on Wednesday at $86.10.
The 62% grade is the iron ore benchmark and the main grade exported by Australia’s top producer, Rio Tinto. While 62% iron ore has performed well in recent weeks, the higher quality 65% ore has done even better, rising 12.4% from its low on Nov. 11 to Wednesday’s close at $99.55 a tonne.
At Wednesday’s close, 65% ore was trading at a premium of 15.6% to the 62% grade, wider than the 13.4% premium when both grades were at their recent Nov. 11 lows. When iron ore prices peaked this year in early July, 65% ore commanded a premium of just 6.6% over the 62% grade.