45c less 32.5c = 38.5%, page-28

The proof of the pudding is in the eating. Once the Chinese lifted the IO purchase strike, the IO prices just rose and rose and rose. The Chinese even lowered taxes on domestic producers to encourage more production. Next stop $170/t by June (could even come earlier) if the inventory is more depleted than thought.

Anyways, Chinese IO grade is shocking. Soon, there will be more cu than fe per tonne of dirt.

http://www.ironoreteam.com/china%E2%80%99s-low-grade-iron-ores-steepen-cost-curve-deutsche-bank

China’s low-grade iron ores steepen cost curve: Deutsche Bank [email protected] Apr 18, 2012 10:01am GMT

These low grades with high mining and further processing costs are “likely [to] shield the margins of the low cost producers in future,” Deutsche Bank said in a report released Monday. Brazilian, Australian and South African seaborne suppliers are traditionally at the bottom of the cost curve, with Canadian and Swedish miners at the top.

Chinese iron ore mines have been brought on despite low iron content as they became competitive against seaborne prices last year when the 62% Fe benchmark reached a record and remained near $150/dry mt CFR North China, much higher than average prices last decade.

“The consequence of this process has been to create a large block of marginal production capacity within China which has steepened the cost curve such that the high cost producer is now four times higher than the low cost producer,” Deutsche Bank said.

“As prices decline this high cost production will cut back on supply thus stabilizing the price at a level which would otherwise be much lower.” The bank’s analysis shows that as the Fe grade declines, energy becomes a larger overall component of the cost structure. “For low grade Chinese producers we estimate that energy [largely used processing the ore to a concentrate] represents nearly 35% of total costs,” compared to a 16% cost split on average for global iron ore supply, it said.