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“China is overproducing, we would expect to see some slowing down in H2” — Ferrexpo CEO

Ferrexpo’s CEO, Jim North (Credit: Ferrexpo)

China’s massive physical purchases of iron ore have been the primary driver of the post-pandemic price rally.

Benchmark 62% Fe fines imported into Northern China (CFR Qingdao) hit a new record on Wednesday, up 3.7%, changing hands for $237.57 a tonne, according to Fastmarkets MB.

Chinese crude steel production has grown by 30% over the past five years. China’s commodity exchanges on Monday moved to raise trading limits and margin requirements for some iron ore contracts and reinstated fees on steel futures.

“When you look at steel production in China, I’m not really sure what they are trying to achieve,” Swiss-based commodities trader and miner Ferrexpo’s interim CEO Jim North told MINING.COM.

Expectations that China will tighten environmental rules have added to the bull case.

“They are doing some publicity but overall China is not slowing down,” said North.

“China is overproducing at the moment. We would expect to see some slowing down in the second half.”

China’s drive to reduce steelmaking emissions has sparked record price premiums for high-quality iron ore products.

“That’s really fed towards the driven up demand for high-grade, so if you’re a high-grade producer at the moment you are getting very good prices,” North said.

Ferrexpo is the world’s third-biggest supplier of iron ore pellets. The company’s mine in the Poltava region of central Ukraine is the largest iron ore deposit in Europe with over 5.5 billion tonnes of JORC-classified Mineral Resources.

Ferrexpo mine in the Poltava region of central Ukraine

The miner produced 2.71 million tonnes of high-grade iron ore pellets in the first quarter of 2021, compared to 2020’s first-quarter total of 2.73 million tonnes.

Decarbonization

Outside of power generation, the iron and steel sector is the largest industrial producer of carbon dioxide. It accounts for 7-9% of all direct fossil fuel emissions, according to the World Steel Association.

In 2020, Ferrexpo added sales of a new product, the direct reduction (“DR”) pellets, which are higher grade (67% Fe) and lower impurity than alternative forms of iron ore pellets. Steel made using DR also requires significantly less fuel.

“DR pellets are particularly important as they position us for the future of carbon-free Green Steel, as well as enable us to reduce our Scope 3 carbon emissions footprint,” said North.

“Five or ten years from now, the largest proportion of our pellet profile will be in the DR market.”