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!