There is no cost in processing ore from wet to dry. Ore is usually wet to mitigate dust at the mine, on the train, at the port, into the ship, onto the receiving port stockpile, etc etc. Ore is then either fed into the agglomeration process (usually sintering) if it is fines, or directly charged into the blast furnace if its lump. The ore is "dried" during those processes.
The discount for "wet" is actually a hang over from the days most mills paid for shipping themselves - they just didn't want to pay to transport water (when IOP was set at annual negotiations and theres was no spot market). These days it is applied because they do not want to buy water, and as product from different producers contain varying levels of moisture, the dry metric tonne has become the IOP index norm.
The calculation is very simple. For x% moisture, the price achieved is:
(Spot US$dry metric tonnes)-(Moisture% x Spot US$dmt).
A discount is then applied for grade. This discount varies according to the market, but is typically between US$1.50 and US$3.50 per percent Fe below the reference grade (62% Fe). So, for FMG's ore, typically at 58% Fe, the discount is:
(62-58) x discount rate
Here is the Dalian Commodity Exchange's current discount rates (in Chinese yuan/t. 1 yuan = US$0.16 so, eg, the Fe% discount is currently 15 yuan/Fe% = US$2.40/Fe%/t.)
4.2 Substitute product quality allowances (premiums and discounts)
Column 1 Column 2 Column 3 0 Target Tolerance Zone Premium/Discount (CNY/MT)1 Iron (Fe) ≥60.0% & <62.0% Each deduction of 0.1%, discount 1.52 >62.0% & ≤65.0% Each additional 0.1%, premium 1.03 >65.0% Pricing at 65.0%4 Silicon dioxide (SiO2)+Aluminum oxide(Al2O3) ≤10.0% When SiO2>4.0%, each additional 0.1% of SiO2, discount 1.0;When Al2O3>2.5%, each additional 0.1% of Al2O3, discount 1.0;5 Phosphorus (P) >0.07% & ≤0.10% Each additional 0.01%, discount 1.0;6 >0.10% & ≤0.15% Each additional 0.01%, discount 3.0;7 Sulfur (S) ≤0.20% When>0.05% & ≤0.20%, each additional 0.01%, discount 1.08 Grain Size At least 70% are finer than 0.075 mm 0
In the above example, FMG's discount would be US$9.60/t or about 14% on a spot price of US$68/dmt. Note that FMG's ore may attract other discounts - particularly that to do with alumina and possibly phosphorous.
The discussion above is rather simplistic as compared to the reality of the more complex arithmetic that is actually used!
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