There is an increase in demand of higher grade quality of iron ore fines and pellets from China in order to boost its output and to lower their per unit pollution. As a result, Iron ore prices are expected to remain high throughout the December quarter and average about $US70 per tonne into 2019. The higher grade ores attract significant premiums. However, the data emanating from the first five months of the year as compiled by Thomson Reuters along with supply chain and commodity forecasts on vessel tracking and port, suggests that China is still consuming large quantities of medium and low grade iron ore despite the changes it intends to make from environment perspective. The latest data demonstrated about receipt of 289.3 million tonnes of Australian iron ore at the ports of China. Now, China in order to strike an optimal balance between protecting the GDP growth target and the level of steelmaking emissions, now could manage its commitments to environmental targets and structural issues like shutting down inefficient enterprises.
In view of this backdrop, the Australian companies expect that there will be demand of big premiums for high grade, low impurity iron ore will stay for longer term.
There are many blue-chip stocks that may develop their strategies around the above landscape. For instance, Australian big mining player Fortescue still sees high demand for iron ore from China and even BHP Billiton aims to benefit from China’s Belt and Road initiative. Not just the blue-chips, but many junior players are also tying their strategy encircling the demand scenario from China. For instance, Flinders Mine is a resources player that has been gearing up for upgrading its product at the flagship Pilbara Iron Ore Project, PIOP, which is in Western Australia. It has also been noted that there was a 40 per cent discount on lower grade iron ore last year as Chinese steelmakers have been looking for higher quality feedstocks (i.e., above 62 per cent iron). This has also resulted in rise of demand from Australia’s magnetite iron ores sector. Magnetite iron ore has a higher cost of production compared with direct-shipping hematite iron ores (DSO), that are produced by iron ore majors like BHP and Rio Tinto, but the upgraded magnetite iron ore product can have a grade in the range of 65 per cent to 70 per cent iron, compared with 62 per cent for a premium DSO. There are number of Australian miners gearing up to take the margin advantage of rise in demand of higher grade quality of iron ore fines and pellets.
Carpentaria Resources is undertaking development studies at its Hawson project in NSW, which considers that it has a low cost, low impurity 70 per cent iron concentrate. Then you have Emergent Resources, which is planning to re-list as Fenix Resources and it now expects to produce up to a 65 per cent product. Additionally, a company, that is now raising fund of $4.5 million at 4c per share to re-list its stock on the ASX, is acquiring the Iron Ridge project through the acquisition of Prometheus Mining. Adelaide based Iron Road is looking up ways or opportunities to fund the development of its Central Eyre Iron Project (CEIP), located on the Eyre Peninsula in South Australia. If these projects get developed, these high grade, low impurity iron ore projects will become well positioned to cater to the rise in demand from China and to meet the high-end demand risen due to structural change in the iron ore market.
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