MANILA (Reuters) - The gap between high-grade and low-grade iron ore shot to a record this week as China’s intense environmental clean-up pushed more steel producers to use higher quality material to boost output.
The increased appetite for higher grade iron ore has helped strengthen the market share of top suppliers Australia and Brazil to more than 80 percent of China’s total iron ore imports, forcing shippers of lower grade material to offer steeper discounts to draw buyers.
Higher quality ore produces more steel for each tonne that is processed, and can reduce emissions as less coke is used in production.
Iron ore with 62 percent iron content traded at $76.56 a tonne on Wednesday, a premium of $29.75 over ore with 58 percent iron content, according to prices published by Metal Bulletin.
That was the highest gap between the two grades since price records that date back to August 2011.
“Definitely the inquiries from our clients are now for medium to high-grade iron ore. There’s less interest in low-grade,” said a Shanghai-based iron ore trader.
Underlining increased appetite for premium iron ore, China’s Dalian Commodity Exchange said on Wednesday it will adjust the quality standards for deliveries of iron ore to meet market demand for high-grade ore.
“Steel mills prefer using higher grade iron ore so they can produce more steel,” said a trader in Beijing who sells Australian shipments. “Demand is more active than before.”
Steel output in China, the world’s largest consumer and producer, surged to a record 74.59 million tonnes in August, trumping the previous all-time monthly high in July.
An infrastructure push has helped boost Chinese steel demand this year, lifting construction steel prices by more than half and fattening producer margins. As authorities shut makers of lower quality steel, those left standing increased output to chase rising prices.
The premium on iron ore lump - higher quality ore that can be fed directly to a blast furnace unlike iron ore fines that need to be processed first - hit a record high of about $25 a tonne on Sept. 8, according to Mysteel consultancy.
As more mills opt for premium ore, suppliers of lower quality material have been deepening discounts, traders said.
An Australian exporter of lower grade ore to China has increased its discount on cargoes this month to 35 percent off the benchmark price from 30-32 percent previously, said the Shanghai trader. Indian suppliers of low-grade material are also offering similar discounts, he said.
Reporting by Manolo Serapio Jr.; Editing by Richard Pullin