Iron ore discounts to disappear as it crashes?

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So says Liberum:

The proposition that there’s a structural shift underway in the iron ore tastes of Chinese steel mills toward the less-polluting varieties is just a myth, according to Liberum Capital Ltd.

“As margins fall, lower-grade material becomes more economic and the discount shrinks,” analysts Richard Knights and Ben Davis said in a note.

“We expect grade premiums will narrow with steel profitability as weaker credit and housing markets impact steel demand,” they said. “The iron ore market is oversupplied.”

Quite right. Though I do think that the discounts are here to stay in some measure. There is logic in using higher grades if pollution is an issue and coking coal is expensive.

The thing is, at $30 for 62%, $20 for 58% doesn’t really seem so bad!

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About the author
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.