High grade iron ore prices may remain at a premium of over $20/dry mt next year for 65% Fe grade against benchmark 62% Fe fines, according to Wood Mackenzie price forecasts.
Consultancy Wood Mac said its benchmark 62% Fe fines price forecast for 2019 is "broadly in line with the year-to-date price of $68/dmt CFR China," in a report sent by email Thursday.
"The price spread between 62%-65% Fe sinter fines is forecast to hold close to 30% next year -- that's twice the three-year trailing average spread pre-2018," Wood Mac said. The company released a metals sector report prepared for London Metal Exchange-led industry gatherings this week.
The Platts 62% Fe IODEX iron ore fines benchmark has averaged at $68.80/dmt CFR China so far this year through Wednesday, and the Platts 65% Fe fines CFR China index has averaged $21.47/dmt higher. The price differential for 65% Fe fines so far this year accounts for around 32% of IODEX, based on Platts calculations.
"Since February this year, the premium for 65% Fe fines -- just three [percentage points] more iron than the benchmark 62% indices -- has doubled from 20% to 40% of the headline iron ore price," Wood Mac highlighted.
China's steel restructuring program, which will continue to shutter more capacity over the next two years, and rising environmental standards were leading global drivers in iron ore demand shifts, Wood Mac said.
The twin trends in China "transformed pricing and demand" for iron ore grades, Wood Mac said. High-grade iron ore demand is persisting in other global markets, adding support to differentials.
Chinese steelmakers exhibited an increasing preference for iron ore with higher iron content and lower silica and alumina levels, for furnaces to produce less slag and more hot metal per ratio of iron ore consumed, Wood Mac said.
"Peak steel in China is drawing nearer by the day and global seaborne trade in iron ore is approaching stagnation, but good times remain ahead for low cost suppliers of premium iron ore products," Wood Mac said.
The Singapore Exchange said Thursday it planned in December to launch 65% Fe Brazilian sinter fines futures and swaps contracts. This is based on higher usage of high-grade iron ore in China due to environmental policies and industry interest in hedging and trading the grade differentials, SGX said.
