Chinese Whispers Send Ore Prices Skyrocketing

By Glenn Dyer | More Articles by Glenn Dyer

Reports that authorities in Tangshan, one of China’s major steel producing centres, are talking about relaxing tough rules brought in last April to cut pollution and smog emissions from the city’s huge steelmaking sector have sent iron ore prices soaring for a second day.

FastmarketsMB said the price of all three grades of ore – 62% Fe fines 58% Fe fines and 65% Fe fines rose more than 4% on Tuesday after similar rises on Monday.

That saw the prices of the three big iron ore exporters enjoy a good day and help drive the ASX 200 up by 1% to a new closing high.

BHP shares rose 3% to $49.30, Fortescue shares rose 2% to $23.28 and Rio shares closed at $126.96, up 1.8% but were over $128 at one stage in the session.

Other reports suggested that some capacity cut ideas might be eased, while other reports said the operation of Basic Oxygen Converters (BOS) operations at steel mills (which convert the pig iron into crude steel) might be exempted from the crackdown on pollution as they are not big emitters.

Sintering plants, coke ovens and blast furnaces emit more pollutants, according to reports.

Reuters reported that pollution and capacity cuts are still being discussed in the government.

Iron ore prices reached $US208.67 ($268.72) tonne for 62% Fe fines. That was a rise of $US9.84 a tonne or more than 4.5%. The price of 58% Fe fines rose $US8.15 or more than 5% to $US181 a tonne. The price of 65% Fe fines were up less than 3% (or $US7.10 a tonne) to $239.90 a tonne.

That still leaves prices $US25 to $US30 a tonne short of the all-time highs reached on May 12.

The production cuts were in response to the Tangshan government’s crackdown on steel mills, with the aim of cutting pollution levels and halving China’s emissions.

Fastmarkets and Reuters reported that the municipal government of Tangshan – China’s steelmaking hub in the north of the country – is reported to have suggested that basic oxygen furnaces no longer come under production restrictions due to the low level of pollutants that they emit.

In a notice released late on Monday May 31, it also suggested a relaxation of the rates of emissions cuts by steel mills in the city to 20-30% from the more stringent 30-50% currently in place.

The larger cuts were announced in April amid a lot of song and dance from local and central government departments and officials and the reports of backsliding might indicate the changes are not written in stone in Beijing and some slippage could happen – which could be bullish for iron ore prices and demand.

It suggested the rate for Chunxing Special Steel, Tangshan Plate, Donghua Steel, Xinda Steel and Songting Steel to be lowered to 30% from 50%, and for another 15 steel mills’ emissions reduction rate to be lowered by 20%, instead of 30%.

This is in line with the central Chinese government’s proposal of using market-oriented methods to cool down red-hot commodity markets, including steel, Fastmarkets reported.


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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