In the physical market meanwhile there is a widening disparity between grades, with demand for high grade/low impurity fines and pellets in particular very strong as mills look to minimise their coking coal usage. Meanwhile discounts for low grade ores, especially those with higher silica levels which require more energy to process, are also widening. While pellet premiums in particular have surged, lump premiums have moved very little as the use of lump over fines only saves on the sintering process, it doesn’t save much on energy and hence coking coal in the furnace.
The price premium for Platts 65%Fe index over their 62% index has blown out in the last month, from $6.60/t in late September to nearly $12/t now, representing the highest premium in US$ terms since February 2014. Of course back then 62%Fe iron ore prices were $120/t, and the current premium in % terms is the highest since 2009.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
