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Surge in import prices spurs hike in
domestic operating rates
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But higher-cost producers may drop out
again as seaborne prices retreat
China's
iron ore production is likely to recede in coming months after the S&P
Global Platts 62% Fe iron ore benchmark deflated to $83/mt CFR Wednesday
from a peak of $126.35/mt CFR on July 3, which had spurred domestic miners
to hike output to a 19-month high.
The
country's production of unprocessed iron ore rose 10% year on year to 74
million mt in July, National Bureau of Statistics data showed. This took
year to date output to 483.87 million mt, up 6.4% on year. Output in
China's major steelmaking province of Hebei accounted for 25.76 million mt
or 35% of the total.
Imported
iron ore prices hit a five-year high at $126.35/mt CFR on July 3 amid
supply concerns in the seaborne market and robust demand. China's domestic
iron ore prices followed suit, touching a five-year high of Yuan 960/mt
($136/mt) in early August.
Mining
sources said production costs for most Chinese iron ore producers were
around $90/mt on a 62% Fe basis. The most efficient miners can produce at
$60/mt, but many typically only lift rates when prices rise above $100/mt
CFR.
Like
the country's steelmakers, Chinese iron ore miners have improved
operations for environmental reasons, which has added to the cost of
production.
As
a result, prices deflating below the $90/mt mark is likely to result in a
paring back of production by higher-cost domestic producers in the months
to come.
China's
crude ore is very low grade and is processed into concentrate with a
grading of around 66% Fe. Around 3-3.5 mt of crude ore is required to make
1 mt of concentrate.
Surging
prices incentivized domestic miners to lift utilization rates, and the low
alumina content of around 0.34%-0.8% attracted local mill buyers.
As
domestic concentrate contains low alumina, demand is impacted by alumina
premiums, which had jumped from $1.70/mt in late January to $6.20/mt in
mid-June, mainly due to a shortage of low alumina supply from Vale after a
tailings dam accident in Brazil. But as Brazilian supply has recovered,
the premium has fallen back to the 80 cent/mt range in mid-August.
Premiums
have also been affected by tepid demand during the seasonal slowdown in
China and extremely weak steel margins.
Source:
Platts
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