China I/O Demand, page-2

this a bit from extract in todays AFR re FMG of interest

Earlier this week, Macquarie analysts predicted the price penalties applied to lower grade Australian iron ore may shrink in coming weeks, providing some respite to miners like Fortescue and Mineral Resources Limited, who export ores with iron content below 60 per cent.

Prices for iron ore have performed strongly over the past two months on the back of strong performance by the Chinese steel sector, which analysts believe has been running near full speed ahead of looming curtailments designed to coincide with the Chinese winter.

Macquarie analysts said a retreat in steel mill profitability was driving demand for cheaper raw materials, including lower grade iron ore.

Macquarie said stockpiles of high-grade Brazilian iron ore in China had risen in recent weeks, while stockpiles of lower grade Australian iron ore had declined, further highlighting the trend.

Chinese steel mills paid 37 per cent less for Fortescue's product than they did for Rio Tinto's "benchmark" product in the three months to June 30, but in encouraging news for Fortescue, that discount to the benchmark product shrank to 33 per cent in the three months to September 30.

While an improvement, that discount is still much wider than has been the norm in the decade since Fortescue started exporting iron ore.