BHP halves 2Q iron ore fines contract discounts

UK-Australian mining firm BHP will halve the contract discounts for its Jimblebar (JMBF), Mining Area C (MACF) and Yandi (YDF) iron ore fines in the second quarter, in line with narrower spot market discounts.

The April-June discount for 62pc Fe basis JMBF will fall to 6pc below the 62pc reference index from a 12.75pc discount in January-March, while the discount for 62pc basis MACF will narrow to 3pc from 6pc to the 62pc index, buyers said.

BHP has narrowed the discount for YDF 62pc basis to 3pc below the 62pc index from 7pc in the current quarter, buyers said.

BHP prices the ores on a 62pc Fe basis on a quarterly schedule. Actual Fe levels are 61pc for JMBF and MACF and 57pc Fe for YDF.

Chinese mills facing thin profit margins are cutting costs by shifting to lower-priced mainstream 62pc and 58pc segment fines. The increased demand has pushed up spot prices in portside and seaborne markets for medium-grade fines such as JMBF, MACF and Roy Hill, as well as for sub-60pc Fe fines like 56.5pc Fe super-special fines (SSF) and 58.3pc Fe Fortescue Blend fines (FBF) sold by Australian producer Fortescue Metals.

BHP's second-quarter discounts are reasonable because they are in line with spot market levels, a Chinese trader said.

The Argus value-in-market (ViM) adjustment for 62pc basis MACF puts it at a $4.75/dry metric tonne (dmt), or 5pc, discount to the $86.70/dmt Argus 62pc ICX index yesterday. The ViM brand differential for 62pc basis JMBF at $5.75/dmt puts it at a 7pc discount to the ICX.

The ViM differential for 58pc basis YDF at $9.65/dmt below the ICX puts it at an 11pc discount on a 58pc basis, but on a 62pc basis it is at a 5pc discount to the ICX.

There has also been a rapid narrowing of discounts for Fortescue ores. The company cut the contract discounts to 16pc from 33pc for SSF in March, and to 7pc from 22pc for FBF in February. The discounts are to the 62pc reference index. The mining firm has not yet released April discounts. Fortescue will also begin to price its 60.3pc Fe actual West Pilbara fines (WPF) in long-term contracts beginning in the next quarter.

WPF is expected to price closest to MACF, which has a similar specification. WPF has a typical 60.3pc Fe, 4.7pc silica, 2.3pc alumina and 0.075pc phosphorus. MACF has a typical 4.7pc silica, 2.25pc alumina and 0.09pc phosphorus.

Australian producer Roy Hill reduced its fines discount to 5pc below the index in March from 7pc in February. It has not yet released its April price policy.