BHP executives downplay price impact of lowered iron ore grade specifications

BHP executives have downplayed any potential price impact of lowering the quality specifications of its Australian iron ore amiddeclining grades in Western Australia's Pilbara region.

BHP said in July it would lower the quality specifications for various brands of its iron ore cargoes loading from Aug. 1, and for cargoes sold on an arrival-month basis starting that month. That was the second degradation, following one for cargoes loading from July 2024.

BHP's Aug. 19 results for the year ended June 30 said "traditional suppliers may need to weigh future investment to sustain production in the face of grade decline and resource depletion."

However, the move has not seen any material impact on prices, BHP executives told an Aug. 19 results media call.

"Our [iron ore] pricing performance has been pretty strong in the business," CEO Mike Henry told the call, responding to a Platts question about price impacts from BHP lowering its iron ore quality specifications.

BHP's second-half iron price realization for fiscal 2025 was higher than the first half, "and higher than the nearest competitor for iron ore," BHP's CFO Vandita Pant said during the call.

BHP's average realized price for fiscal 2025 was $82.13/wmt, down 19% from $101.04/wmt for fiscal 2024.

"While the commercial August contract period has different settings for iron ore quality, that's minor -- that's BAU [business as usual]. There isn't anything specific that we see" in terms of material price impact, Pant said.

"In fact, from our quality perspective, our variability has reduced in the second half," Pant said. When the Western Ridge project in Western Australia starts production, which is expected in the first quarter of fiscal 2027, "that brings in the tons" which have been depleting at Newman, an "aged mine where the quality variation can be higher," the CFO added.

"There isn't anything structurally from a quality perspective that we have a concern on at all," Pant said, adding that "in the second half, price realization against the index has been higher than the competition as well."

Henry said BHP has succeeded in its strategy laid out in 2017 to become the lowest cost major producer of iron ore and to improve the average quality of its product suite, both increasing average iron content as well as the proportion of lump, which attracts a premium.

"We're always looking for opportunities to become even lower cost, and you can see that coming through our medium-term guidance, even more reliable. Where there's sensible opportunities and where we can see returns to eke out marginal improvements in quality, we'll do that as we've done for the past five years or so," Henry said.

BHP's plan is to increase production to over 305 million mt/year on a 100% basis and decrease unit costs to under $17.50/mt at its Western Australia Iron Ore business over the medium term, according to the company's full-year results.

The Platts assessed IODEX CFR China 62% iron ore price was $101.05/dmt on Aug. 18, up from $94.45/dmt on Aug. 19, 2024.

S&P Global Commodity Insights' Metals and Mining Research team made a modest upward adjustment to its IODEX 62% Fe price forecast averages for the September and December quarters, now projected at $98.40/dmt and $96.90/dmt, respectively, according to an Aug. 4 note.

The team also revised its global seaborne trade balance to reflect a modest deficit in 2025, due to an upgraded projection for China's iron ore imports, now anticipated to reach 1,215 million mt -- a decrease of 23.2 million mt year over year -- due to "recent stronger-than-expected trade activity."

Customers understanding new dynamic

Rio Tinto's outgoing CEO Jakob Stausholm also pointed out in a July 30 results call that "all the producers in the Pilbara are facing lower grade."

Having also downgraded its flagship Pilbara Blend Fines and Lump effective from July, Rio Tinto has started making the first shipments under its new specifications, Rio Tinto CFO Peter Cunningham told the call.

"It is early days, but I think so far, all the work we did with the customers so they understood our system and... [for us] to meet what they needed is working out well. So I think we're pretty comfortable with the initial shipments and where they're landing from a revenue perspective," Cunningham said.

Regarding costs, "the near-term impact is just simplification of the product, because we're going down mostly to one blend rather than having... the degree of SP10 we've had. So SP10, you can expect to come down in the second half of the year."

With regards to the benefits of lowering the iron ore grade specification, Cunningham said, "it's about actually increasing the amount of production capacity in our mines. It's about the sort of capital intensity of the business in the long term and about managing sort of closure liabilities as well."

Thus, it is part of Rio Tinto's effort to "maximize the value from our system," the CFO said.

The company is also "accelerating the first shipment of high-grade ore" from the high-grade Simandou project in Guinea to November and will be focused on ramping up to full production over the following 2.5 years, Stausholm said.