By Manolo Serapio Jr
DALIAN, China (Reuters) - Surging coal prices are prompting many Chinese steel mills to opt for higher grade iron ore to boost efficiency and use less coal, forcing suppliers of low-grade ore from India and Iran to offer deep discounts to attract buyers.
At an annual iron and steel conference in China's port city of Dalian, low-grade iron ore suppliers scoured for steel mills in a packed hotel lobby, hoping to find new business.
"No discount, no buyer," said a Chinese trader who sells Indian iron ore with iron content of less than 60 percent, which is considered low grade.
On average, he said, he sells 57-percent grade material at 18-19 percent discount to the Platts pricing index.
Another supplier of Indian iron ore said he was giving the same discount to his clients, a practice that started in January. It came to 20 percent in June when iron ore prices dropped to near four-month lows.
"It's very difficult to sell because of excess supply," he said.
The glut has hammered iron ore prices in the past three years and the surge in coking coal prices in recent months has made it harder for lower grade material to enter the Chinese market.
That in turn boosts appetite for high-grade iron ore produced by Australia and Brazil, which together supplied 83 percent of China's iron ore imports in January-July.
"Right now everybody wants to buy only 62 percent (grade) iron ore. When coal went up everybody wants to buy higher grade so their coal consumption is lower," said Keyvan Ja'fari Tehrani, head of international affairs at Iranian Iron Ore Producers and Exporters Association.
The problem is the average grade of iron ore produced by mines in Iran is less than 60 percent, said Tehrani, forcing many to shut. From 200 mines in 2013, iron ore producers in Iran have dropped to 20, he said.
The spot price of Australian premium hard coking coal <.PHCC-AUS=SI> has surged more than 160 percent this year, dwarfing a 29 percent gain in iron ore <.IO62-CNI=SI>.
Lower coal output in China and supply disruptions in top exporter Australia combined to lift coal prices while expectations of more supply limited iron ore's upside.
Still, many are hoping to get new clients in one of China's biggest gatherings for the steel and iron ore industry.
"I'm looking for traders and end-users," said an iron ore supplier based in Tehran. "The goal is get to know people and make business eventually," he said, clutching a bunch of business cards.
(Reporting by Manolo Serapio Jr.; Editing by Michael Perry)
Disclaimer: No Business Standard Journalist was involved in creation of this content
