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Australia's BHP narrows Q2 term discounts for iron ore fines to 3%-6%: customers

Singapore — Australia's BHP has announced price discounts for its term contracts of 61% Fe Jimblerbar Blend fines at 6%, for 61% Fe Mining Area C fines at 3%, and for 57% Fe Yandi fines at 3% for shipments loading in the second quarter of 2019, the miner's contract customers said Friday.

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When contacted, a BHP spokeswoman declined to comment on the matter.

In Q1, BHP's discount for Jimblebar blend fines stood at 12.75%, discount for MAC fines stood at 6%, while discounts for Yandi fines stood at 7%.

Market sources said that the latest discounts showed that the current market level was in line with recent spot trades.

"The adjusted discount is within our expectations, I am not surprised to see the discounts announced by BHP today," a Chinese trader said.

On Thursday, BHP sold 61% Fe Jimblebar Blend fines at a discount of $4/dmt to the April average of 62% Fe assessments and 57% Fe Yandi fines at a discount of $1.7/dmt over April average of 62% Fe assessments. The miner also sold 61% Fe MAC fines at a discount of $1.75/dmt over April average of 62% Fe assessments.

Narrowing steel margins had led end-users to increase the usage of discounted medium grade cargoes in blast furnaces, and push traded levels of seaborne cargoes substantially higher in Q1.

Due to the supply disruption of Rio Tinto's Robe River fines, coupled with thin steel margins, demand for Yandi fines is also high.

However, as discounts for Jimblebar blend fines and MAC fines has increased by $1-$2/dmt in the last two months, some end-users felt that other mainstream fines were comparatively more cost-effective.

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"Flat price is close to $90/dmt now. I don't think there is much room for discounts to be adjusted higher again. Otherwise steel mills could use other substitutes in blast furnaces," an end-user from Hebei said.

Market sources said that while a continued preference for discounted fines at the port was likely to extend into spring, there was uncertainty if price spreads between discounted fines and PBF could be sustained.

"Steel margins have been weak and hence end-users prefer buying discounted cargoes. However, lower steel inventory levels will kick-start an increase in steel production and some end-users might utilize higher grade fines instead," a Chinese trader said.

Several market sources also said that a reduction in China's value-added-tax in April would alter buying preferences of end-users at the port.

"With port prices likely to head lower, some end-users might find it more cost-effective to switch back to PBF and other premium medium grade fines," a trader said.

-- Lu Han, lu.han@spglobal.com

-- Jun Kai Heng, jun.kai.heng@spglobal.com

-- Edited by Norazlina Jumaat, newsdesk@spglobal.com