Tuesday 23rd Jul, 2019

China pollution plan to keep low-grade ores down

Photo: FMG

Lower grade iron ores like those exported by Fortescue Metals Group will likely continue to be stymied by tougher Chinese environmental controls, after the country indicated it will continue with the new regulations in the long term.

According to multiple reports, China’s environment minister Li Ganjie this week said pollution control measures put in place during the winter months in northern China would become more common.

“This campaign started in September and will last until March next year,” he was quoted by Fairfax, “but it will not be a one-off. We will continue it in the following years as a long-term project. This campaign is not just a temporary measure.”

The comments are bad news for Fortescue, which has been forced to sell its lower grade iron ore at a larger discount since the regulations were put in place.

FMG’s 56.3% grade ore was being offered at a 40% discount from the benchmark price for November deliveries, according to research from the AFR. This continues the trend from September, which was a wider discount than the 32% discount seen in August.

Meanwhile, a 23% discount was seen for FMG’s 58.5% grade ore for November deliveries, also in line with September, but a wider discount than the 21% seen in August.

As the largest lower-grade iron ore miner, the discount FMG accepts impacts smaller producers.

US miner Cleveland-Cliffs president Lourenco Gonclaves last week – without naming FMG – said its lower-grade WA iron ore business was under threat of going under due to the major discounts being accepted.

“I have a competitor over there that is 13 times our size in Australia giving their stuff away,” Gonclaves said. “So that is the problem we have over there, they will dictate the fate of what’s going on with the [discount].”