Iron ore buying shift brings more SP10 sales to China

Australian mining firm Rio Tinto has increased spot sales of its 59pc Fe SP10 iron ore fines, as Chinese steel mills seek out lower cost feedstocks to counter narrowing profit margins.

Rio Tinto rarely offers its supplementary product (SP) 10 into Chinese spot markets where buyers have resisted paying full value for sub-60pc Fe fines on a $/dry metric tonne (dmt) unit basis.

Around three to four cargoes were sold to Chinese trading firms last week at floating discounts of $11.50-12/dmt to the 62pc index.

The producer last year sold Capesize cargoes of SP10 to an east China steel mill and a Chinese trading firm. A portside trading firm bought 140,000t of SP10 from the mill early this year and sold it at Rizhao port at prices similar to SSF fines at the port. A sale of 10,000t SP10 with 56.94pc Fe was done at 528 yuan/wet metric tonne at Rizhao on 8 March.

The typical specification of SP10 is 59pc Fe, 4.6pc silica, 3.8pc alumina, 0.17pc phosphorus and 0.07pc sulphur, Chinese traders said. The high alumina and phosphorus levels limit the buying interest to trading firms and mills that will blend the levels down. Its seaborne discounts are wider than the discounts for Rio Tinto's 61pc Fe RTX fines at roughly $7-8/dmt below the 62pc index.

RTX is a blendstock from Rio Tinto's flagship product PB fines that has been separate to reduce the alumina content in PB fines. The RTX typical specification is 61pc Fe, 4.2pc silica, 3.1pc alumina, 0.13pc phosphorus and 0.05pc sulphur.

SP10 had not been popular in the Chinese market but gross profit margins have plunged since November from more than Yn1,000/t to a range of Yn100-500/t. The thin margins have shifted mills' appetite to lower cost medium grade fines like Australian mining firm BHP's MACF and JMBF, as well as Australian mining firm Fortescue Metals' low-grade fines FBF and SSF. The increased demand has narrowed floating basis discounts for the brands.

SSF is selling at a 17pc discount to 62pc portside index levels compared with discounts of 35pc in late December.

JMBF traded at discounts of $4.20-4.30/dmt levels last week and at a discount of $3.90-3.95/dmt over 11-12 March. A 26 March-4 April laycan of 80,000t of JMBF traded today at a $4/dmt discount to the April average of the Argus ICX and Mysteel62 indexes on the Corex online trading platform.

SP10 fines with its wider discount is also attracting more buyers.