Iron ore lost ground and strength in March and in the first quarter as Chinese steel mills chased higher quality ore from Brazil in preference to their usual target of 62% Fe fines from the Pilbara region of Australia.
The prices of all three types – 58% Fe, 62% fe and 65% Fe (all fines) showed the impact of the switch away from 58% and 62% Fe fines in March as the Tangshan pollution cutbacks hit hard (and forced steelmakers in other cities to take the issue of smog and pollution controls much more seriously).
While the price of all three ore types fell in March, the drop was more pronounced for 62% Fe fines and 58% – the ore products shipped by BHP, Rio Tinto and Fortescue (58%). In fact the price of 58% Fines slumped more than 12% in March.
Iron ore prices continued to hit a series of six- and seven-year highs throughout the first quarter but sold off from mid-March onwards on the pollution problems in Tangshan. The price of 62% Fe reached $US174 a tonne and the price of 65% Fe fines rose above $US202 a tonne.
Fastmarkets data show the price of 62% Fe fines delivered to northern China dropped $US1.43 on the final day of the quarter to $US165.15 a tonne.
That was down nearly $US10 a tonne from the $US175.78 a tonne in February 26. But it left a small gain of 2.8% or $US4.68 a tonne from the $US160.47 a tonne at the end of 2020 (December 31).
The price of 65% Fe fines (Ex Brazil) rose 90 cents on Wednesday to end the month and quarter at $US194.10.
That left it down just under $US5 a tonne over March, but up a substantial $US20.40 a tonne (more than 11%) since the end of December in another strong signal that the pollution crackdown is sending Chinese steel mills in chase of higher-grade ores such as the 65% fines from Brazil.
Data next week from the Pilbara Ports Authority about March iron ore shipments will tell us a lot about the impact of the weaker demand for 62% Fines (from the Pilbara) and what sort of impact it is having on Australian exports.
The price of 58% Fe fines (the ore grade that still make up much of Fortescue’s shipments and some from Roy Hill, the Gina Rinehart mine) also suffered a hit in March and the first quarter.
The price fell $US21 a tonne in March to $US140.94 a tonne on March 31. That 16% fall made up all the $US2.64 a tonne drop in the price since December 31 – from $US149.63 to $US146.99 a tonne, illustrating the extent of the way Chinese steel mills have gone off lower grade ores.
And that was reflected in the sharemarket performance of the big three local miners – especially Fortescue – in the past month and since the start of the year.
BHP shares did the best – down 11% in the month but still up 6.7% for the first quarter. That shows the value of having copper, oil and gold in the portfolio in addition to iron ore.
Rio shares were sold down, losing 14.4% in the past month for a year to date drop of 2.7%.
Fortescue shares lost 12% in the month and nearly 14.7% for the year to date.
The ASX 200 was up 3.1% for the quarter so all three iron ore giants seriously underperformed.
Fortescue is spending on new mines to boost quality but this expansion looks like coming onto a market that will not be short of supplies, unless there are more problems with COVID in brazil where the pandemic is intensifying.