ANALYSIS: Explaining the silica, alumina value-in-use oscillation in iron ore pricing

It’s been an uncharacteristically stable year for the benchmark iron ore price, with the Metal Bulletin Iron Ore Index-62 (MBIOI-62) moving within a 26% range this year, and a less than 10% range over the past four months.

Contrast this with last year’s MBIOI-62 price range of 78%, and 112% the year before that. But while it’s been relatively quiet on the mid-grade front, the action in the inter-grade and inter-product price spreads has remained intriguingly dynamic. China’s broad industrial reforms, capacity reduction and environmental protection policies remain the driving forces behind the wider, more volatile price spreads between the different grade references. The spread between Metal Bulletin’s 65% Fe Iron Ore Index (MBIOI-65-BZ) to Metal Bulletin’s 58% Fe Iron Ore Index (MBIOI-58) now stands nearly ten times wider than its narrowest point on December 7 2015, shortly before the implementation of the industrial policies encompassed under China’s 13th Five-Year Plan.  Steel mills’ reaction to the resulting higher steel product profit margins and the stricter environmental constraints have been favorable for sellers of high-Fe-grade iron ores, and increased aversion toward high impurity levels; particularly iron ore’s major gangue constituents,...

Published

Peter Hannah

July 30, 2018

11:55 GMT

Singapore