BHP widens Oct iron ore discounts across all medium-grade fines

Australian iron ore miner BHP has widened October discounts for term contracts across Jimblebar Fines (JMBF), Mining Area C Fines (MACF) and Newman High Grade Fines (NHGF), while narrowing the discount for Newman Unscreened Lump (NBLU), BHP's contract customers said Sept. 24.

The discounts for JMBF and NHGF have widened for two consecutive months to $7.85 per metric ton and $2.57/t, respectively, over the October average of 62% Fe iron ore indexes. Meanwhile, the term contract discount for October-loading MACF significantly widened, from $3.92/t to $4.58/t.

BHP was not immediately available for comment on the matter.

Given the recent preference of steel mills for low-grade fines, most market sources were unsurprised by BHP's October discount changes, despite overall softening in outright prices.

BHP's decision to widen the discount for medium-grade fines highlights the impact of weak steel margins, pushing mills to seek larger discounts on iron ore products, according to market sources.

"Even though iron ore prices have fallen lately, the weak steel performance has kept mill profitability low," a Chinese steel mill said. "With mainstream product supplies still abundant, mills are increasingly attracted to medium-grade fines with larger discounts."

Despite the lower overall cost of iron ore materials, steel mills are closely monitoring their margins, leading to wide fluctuations in September's spot discount levels -- especially for MACF -- as mills valued their cost-effectiveness, resulting in expectations of a wider term discount in October, sources said.

Among the BHP brands, the discount for October-loading NHGF expanded the least, to $2.57/t from $2.50/t, essentially remaining similar to September levels.

"Despite a minor decline in Newman fines' latest quality metrics, it continues to offer a relatively high grade compared [with] other BHP brands, making it difficult to widen the price differential from other medium-grade fines with similar specification," a Chinese steel mill said.

September also saw fewer NHGF spot cargoes out in both the primary and secondary markets amid lackluster demand, keeping both term and spot discounts in check compared with their other brand counterparts.

However, market sources noted that recent spot discounts for Australian low-grade fines have strengthened due to anticipated supply tightness and quality concerns, suggesting potential improvements for spot and term discounts for BHP's JMBF and MACF in November.

Yet, as downstream steel performance remained an issue for end-users, limited upsides are also expected, noted sources.

Conversely, the October discount for NBLU was narrowed to a discount of $3.38/t CFR China over the October average of 62% indexes, down 10 cents/t from September's $3.48/t CFR China. The narrowed discount was largely expected, as discounted lump products, including low grade and unscreened lumps, traded better due to cost efficiency.

Some steelmakers chose cheaper lump alternatives over mainstream options, as the recovery of blast furnace operations and downstream steel demand has been slow, despite entering the traditional peak season of 'golden September and silver October', according to an international trader.

Platts, part of S&P Global Commodity Insights, assessed the Iron Ore Spot Lump Premium China at 11 cents/dmtu Sept. 23, unchanged on the session.