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FEATURE: Foreign miners tailor more ores for China mills

Vale, the world’s largest iron ore producer, will cooperate with Ningbo Zhoushan Port to produce its first iron ore grinding product dedicated for Chinese users – ‘GF88’ – at Shulanghu iron ore terminal in Zhoushan in East China's Zhejiang province, with the first ore to be available during first quarter next year, according to news released on Ningbo Zhoushan Port’s official website on December 18.
The Brazilian miner, a pioneer in blending different ores at Chinese ports for key Chinese mills, is taking ‘customer service’ to a new level by physically processing ore in China to satisfy changing local mill requirements. But with other miners such as Australian’s Rio Tinto also beginning to offer blended ores to their customers – and offering other standard products priced in Yuan – the race for more precise marketing in China has started.

GF88 is a new brand of iron ore feed for pelletizing, ground from Vale’s Carajás fines, that is specially designed and produced for Chinese steelmakers in response to the environmental concerns of China’s steel industry, as Mysteel Global reported.

In its statement, Ningbo Zhoushan Port said that under the mining service agreement it had signed with Vale, it will provide a full range of services including site construction, iron ore grinding, loading and unloading, storage, operation and maintenance for Vale’s project at its Shulanghu iron ore terminal. The port noted the production process for GF88 at the Shulanghu terminal will not require industrial water or fuel, thus no waste water or tailings will be generated.

Early in November, Eduardo de Mello Franco, Vale’s Marketing Manager, had told delegates at Mysteel’s conference Xiamen in Fujian province, that the miner aims to provide this iron ore product during Q1 2020. Just a few weeks ago on December 4 at a roadshow Vale held in London for capital market participants, he returned to the GF88 theme and the new product’s place in Vale’s future in China.

“(GF88) was an initiative that we started in order to understand China,” he told attendees. “(The Chinese mills) are more worried now about dust and they are investing in pelletizing to avoid the sintering process. (But) in order to make the pellets, they need pellet feed, so we are grinding Carajás fines to feed this market. It is about 30 million tonnes and we can use what we call free Carajás to apply in a new possibility,” de Mello Franco explained, adding that this year Vale expected to provide about 7 million tonnes of the new product.
 An aerial view of Ningbo Zhoushan Port’s  Shulanghu iron ore terminal in East China's Zhejiang province, where Vale will produce its first iron ore grinding product for Chinese users 
 
Source: Ningbo Zhoushan Port's official website

The Brazilian miner’s Carajás Fines offering is mainly produced at Vale’s mining operations in its Northern System in the state of Para in North Brazil, which includes the S11D project whose output Vale expects to ramp up to 75 million tonnes this year (from 58 million tonnes in 2018) and to 90 million tonnes for 2020. 

Vale also plans to stretch its S11D iron ore capacity to 100 million tonnes/year and double the output from its Serra Sul mine, where S11D is located, to 150 million tonnes beyond 2020.

Over this year’s January-September period, Vale’s Northern System produced around 138 million tonnes of iron ore fines, with part of that ore being blended with low-grade ore from Vale’s Southeastern System and Southern System to generate blended fines.

Overseas iron ore miners updating their iron ore products

But Vale is not alone in tailoring its catalogue to a changing market, with other major overseas iron ore miners also updating their products to meet customers’ requirements, especially Chinese steelmakers, Mysteel Global noted.

Just last month, Australian iron ore miner Rio Tinto trialled its new product, Rio Tinto Blend Fines (RTBF), in China for the first time, a Rio official confirmed in an email to Mysteel Global, with the blending operations undertaken at Tangshan Caofeidian Shiye Port in North China’s Hebei province.

“We started trialling blending opportunities with our IOC concentrates (from operations in Canada) and SP10 brand from the Pilbara last month (but) the trial is limited in scope and volumes,” according to Rio’s official. “Depending on how the trial goes, we will … look to lift our product offerings, increase the number of ports, and provide further innovative solutions to meet customer requirements,” he told Mysteel Global.

Meanwhile, also at Tangshan Caofeidian Shiye Port, London-headquartered miner Anglo American recently produced its first consignment of a new blended iron ore product, a port official confirmed. Other Chinese market sources told Mysteel Global that the new ore product, named Anglo American Atlantic Fines (AAAF), is a blend of Minas-Rio pellet feed from Anglo’s mining operations in Brazil, and Kumba Fines from its mining operation in South Africa.

For its part, Vale commenced iron ore blending at Chinese ports back in 2015 and to date has conducted blending operations at 17 ports in China, Mysteel Global understands.

An official with a Jiangsu-based steel mill described the recent moves of these miners as “normal operations” at the present stage of these companies’ development. “After all, all companies need to appeal to customers’ updated requirements. And these miners had predicted that in the future Chinese steelmakers would consume more higher-grade iron ore, especially pellets, given the environmental protection concerns, so it is not so surprising that they will do so,” he added.

Miners’ new products and Yuan-priced sales at China’s ports weigh on Chinese iron ore traders

With more miners commencing iron ore production or blending at Chinese ports, it seems certain that their Yuan-priced spot iron ore sales in Chinese portside markets will gradually increase.

As the pioneer, Vale had kicked off Yuan-priced spot iron ore sales at Chinese ports along with its blending business four years ago and in 2018, had sold 18 million tonnes of iron ore denominated in Yuan. Vale’s latest move was selling one shipment of Yuan-priced Brazilian Blend Fines (BRBF) to Shandong Yongfeng International Trade Co by adopting the pricing formula of the Dalian Commodity Exchange’s May 2020 futures contract iron ore price plus a premium/discount, with the delivery port as Qingdao, as Mysteel Global reported.

Moreover, Rio Tinto, BHP and Fortescue Metals Group, the world’s other top iron ore miners, have also begun Yuan-priced iron ore spot sales one by one, with Rio Tinto selling its first Yuan-priced deal – involving 10,000 tonnes of medium-grade SP10 fines, a non-mainstream product – to Hebei Gaoyi Steel on October 11, with the delivery port being Rizhao in Shandong. 

Not to be outdone, FMG concluded its first Yuan-priced iron ore deal on the Beijing-based e-trading platform – Beijing Iron Ore Trading Center Corporation or COREX – on November 21.

“It has been a trend that miners are getting involved in more Yuan-priced iron ore sales in China’s market, and when they produce or blend more ores at Chinese ports, the sales will increase,” a Jiangsu-based iron ore trader remarked. “Miners might be exploring new models of cooperation with Chinese steel mills,” he added.

Against this background, some Chinese iron ore traders admitted to already feeling the pressure, according to a Shanghai-based market source close to domestic ore traders.

“Currently, as miners are still just trading some of their non-core products in Yuan, some iron ore traders indicated that they may choose to avoid trading these products – given the competitive disadvantage they face compared to miners when pricing for steel mills,” he told Mysteel Global. In direct B2B sales, the miners will also be able to offer cheaper, Mysteel Global notes.

Also, some traders indicated that they would make more efforts to develop and maintain their sales channels, as for now, the miners’ most cooperative partners were large-scale steelmakers, according to him.

China’s steel industry, as the world’s largest importer and consumer of iron ore, peaked its iron ore imports in 2017, with the volume easing 1% on year to 1.06 billion tonnes in 2018. This year over January-November, China imported 971 million tonnes of ore, down 0.7% on year, according to the latest statistics from the country's General Administration of Customs.

Written by Victoria Zou, zyongjia@mysteel.com
Edited by Russ McCulloch, russ.mcculloch@mysteel.com