Singapore — China's iron ore production is likely to recede in coming months after the S&P Global Platts 62% Fe iron ore benchmark deflated to $83/mt CFR Wednesday from a peak of $126.35/mt CFR on July 3, which had spurred domestic miners to hike output to a 19-month high.
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RegistroThe country's production of unprocessed iron ore rose 10% year on year to 74 million mt in July, National Bureau of Statistics data showed. This took year to date output to 483.87 million mt, up 6.4% on year. Output in China's major steelmaking province of Hebei accounted for 25.76 million mt or 35% of the total.
Imported iron ore prices hit a five-year high at $126.35/mt CFR on July 3 amid supply concerns in the seaborne market and robust demand. China's domestic iron ore prices followed suit, touching a five-year high of Yuan 960/mt ($136/mt) in early August.
Mining sources said production costs for most Chinese iron ore producers were around $90/mt on a 62% Fe basis. The most efficient miners can produce at $60/mt, but many typically only lift rates when prices rise above $100/mt CFR.
Like the country's steelmakers, Chinese iron ore miners have improved operations for environmental reasons, which has added to the cost of production.
As a result, prices deflating below the $90/mt mark is likely to result in a paring back of production by higher-cost domestic producers in the months to come.
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Free TrialChina's crude ore is very low grade and is processed into concentrate with a grading of around 66% Fe. Around 3-3.5 mt of crude ore is required to make 1 mt of concentrate.
Surging prices incentivized domestic miners to lift utilization rates, and the low alumina content of around 0.34%-0.8% attracted local mill buyers.
As domestic concentrate contains low alumina, demand is impacted by alumina premiums, which had jumped from $1.70/mt in late January to $6.20/mt in mid-June, mainly due to a shortage of low alumina supply from Vale after a tailings dam accident in Brazil. But as Brazilian supply has recovered, the premium has fallen back to the 80 cent/mt range in mid-August.
Premiums have also been affected by tepid demand during the seasonal slowdown in China and extremely weak steel margins.
-- Analysis by Crystal Hao, newsdesk@spglobal.com
-- Edited by Wendy Wells, wendy.wells@spglobal.com