Has an Australia-to-Europe iron ore arbitrage opened?

China has long been the epicenter of the iron ore market. Australian miners’ medium grade iron ore fines are the foundation of China’s sinter feed, with other regions having to compete for space in the mix. Radical changes in procurement preferences in China this year, though, have pushed down the price of Australia-origin ores compared to Brazil’s, potentially opening up an arbitrage opportunity for Australian material to other regions. Australia’s supply of higher alumina-content iron ore has increased this year at a time when supply of competing Brazilian (low alumina) ore has eased. This has caused a change in the price steelmakers are placing on alumina content in iron ore. Compounding this has been a reduction in China-produced iron ore, which typically has low alumina content. These changes have made Australia-origin medium grade fines appear economic to some European steelmakers, procurement representatives said at a recent industry conference. The penalty for higher alumina content, or the premium for lower alumina content ores, has shot upward.   Having started the year at $1.8 per 1% of alumina, Platts’ assessment for this impurity has spiraled upwards, hitting a record high of $8.5 per 1% at the end of Q2. EUROPEAN PIVOT In… continue reading

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