Chinese steel mills and traders are rushing to secure long-term contracts for high-quality iron ore ahead of winter steel output cuts, a boon for the main supplier of such grades of the commodity, Brazilian mining giant Vale.
China, the world’s biggest consumer of the steelmaking ingredient, needs higher-quality, less polluting grades of iron ore as it battles to clear its notoriously smoggy skies.
That demand highlights how China’s prolonged war on pollution is shaking global markets for iron ore, the world’s most heavily traded bulk commodity.
The push to get contracts for quality ore is gathering pace as China gears up to enforce industrial production limits on its northern region for a second winter, with top-steel producing city Tangshan aiming to curb up to 70 per cent of mill output based on each plant’s carbon emission levels.
Hebei Jingye Group, a medium-size steel mill in the smog-prone northern province of Hebei, is looking for a contract with Vale for supplies of high-grade ore in 2019, a company official said.
That would follow on from a 2018 contract for 1.5 million tonnes of Vale’s Brazilian Blend iron ore fines, or BRBF, with 63-per cent iron content. “We have already regretted not buying more BRBF. Even if we don’t use all of it, we can still sell it in the spot market and make lots of money since prices have gone up so much,” said Jia Zhanhui, who purchases raw materials for Jingye.
Vale, the world’s largest iron ore miner, said it was running out of immediate supplies of some of its top-grade products, with demand from China surging.
“Chinese companies are looking for more long-term contracts with us because of the quality,” Peter Poppinga, executive director for ferrous and coal at Vale, said on the sidelines of an industry conference in China. “We are completely sold out in Carajas,” Poppinga said, referring to one of the company’s high-grade ores, with iron content of around 65 per cent.
“We will allocate Carajas according to long-term contracts and according to some spot opportunities.”
Of the world’s big four iron ore miners, Vale stands to benefit the most from China’s growing shift towards less pollutive raw materials due to its mostly high-grade products.
The firm on Thursday said it was looking to expand its flagship iron ore mine in Brazil to feed Chinese demand.
“If you have a long-term contract with Vale in hand right now, it is easy for you to sell it in the market with $5.50 extra per tonne on top of the agreed prices on the contract,” said an iron ore trader with government-backed Zheshang Development Group. He declined to be identified due to company policy. — Reuters
Muyu Xu, Manolo Serapio Jr
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