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BHP extends March iron ore discounts

Mining industry / Australia

Australian iron ore miner BHP has increased discounts on its Jimblebar Fines (JMBF) and Mining Area C Fines (MACF) forward contracts, while narrowing its Newman Unscreened Lump discount for March, contract clients said on February 23.

BHP extends March iron ore discounts

The JMBF discount has increased for two consecutive months to 3.5% based on the March Fe iron ore index average of 62%, while the MACF forward contract discount for March loading has been increased to 0.75% from a fixed rate for term contracts with loading in February.

Market sources were largely not surprised by the increase in BHP's March discounts, as the move was a reflection of weaker-than-expected demand after the Lunar New Year.

"Iron ore prices have shown an overall downward trend since the New Year, leading to an understandable increase in discounts on BHP's medium grade fines compared to the previous month," said a Singapore trader. “Although the return to work will be gradual starting from the Spring Lantern Festival, the return to full capacity may be delayed until after the first lunar month.”

“Although steel's profitability is still low, it is slightly better compared to last month. This may be why low iron fines are in less demand,” said a Singapore iron ore trader.

Spot differentials for MACF and JMBF trended lower during the week. JMBF spot cargo discounts sold by BHP for loading in the second half of March increased from minus $3.70/dmt to minus $4/dmt based on 62% of March indices at the start of the week. The fixed price of MACF transactions over the period also fell from $126.80/dmt to $120/dmt.

“The relatively low prices of JMBF and MACF sold by BHP in the primary market recently led us to expect further discounts for their March futures contract,” said an international trader. “These low premium levels are expected to remain under pressure in the short term, with room for improvement during the two Chinese sessions in March.”

In contrast, the March discount on Newman Unscreened Lump (NBLU) was narrowed to $4 US per day tonne CFR China to the March average of 62% Fe indices, which is 40 cents per day tonne higher than the discount of US$4.40 per day tonne CFR China to the February average of 62% Fe indices.

The reduced discount was largely in line with market expectations as discounted lump products, including low-grade and ungraded lumps, sold better in the post-holiday market, sources said.

Some steelmakers preferred to source cheaper lump options instead of conventional lumps, as the resumption of blast furnaces and the recovery in steel processing demand have not picked up pace despite the resumption of official working days in China, according to an international trader.

“Given current profits, plants may not use main lump grades in the steelmaking process for economic reasons,” said a Chinese iron ore trader.

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