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good news for High Grade IO producers

http://au.news.yahoo.com/thewest/business/a/21933793/green-china-may-change-ore-world/

The Pilbara's iron ore kings have dismissed suggestions this week's iron ore price plunge sets a new short-term trading range for the commodity but say structural changes in China's steel industry could change the dynamics of the export industry.

Speaking at an iron ore conference in Perth yesterday after the biggest one-day iron ore price slump in four years spooked stock markets, senior industry figures said prices would recover in the short term. New long-term threats to local producers were emerging.

Speakers said China's focus on environmental issues could lead to a structural shift in buying patterns favouring higher-grade product, lump ore and pellets, at the expense of lower-grade ore being shipped by Pilbara producers such as Fortescue Metals Group and Atlas Iron.

Citi Research commodities strategist Ivan Szpakowski told the conference that China's five-year steel plan was heavily focused on environmental issues.

The Chinese Government was also using environmental standards to address overcapacity in the Chinese steel industry, he said, closing older mills and putting pressure on sinter plants - used to turn iron ore dust, or fines, into a lumps of iron ore before feeding it into a blast furnace - to meet new environmental standards or close.

"The supply growth in the market in the past two years is driven by lower-quality ore out of Australia - 58 per cent ore. Starting from 2015 you're going to see much stronger growth in supply of higher-grade ore, especially coming out of Brazil," Mr Szpakowski said.

That would lead to a bigger difference in price between lower-grade Pilbara ore and higher-grade products produced by Brazil's Vale and BHP Billiton and Rio Tinto.

Rio Tinto Iron Ore boss Andrew Harding and BHP counterpart Jimmy Wilson agreed the shift could change the market. "Low-grade iron ore with high impurities will come under pressure," Mr Harding said.

With lump ore commanding as much as an $US18/t premium over benchmark spot prices, Mr Wilson said BHP wanted to raise its share of lump ore exports and would consider quality in developing any new BHP mines.

The shift is a potential boon for WA's only two magnetite miners, Gindalbie Metals and CITIC Pacific, which plan to produce a low impurity concentrate grading 66 to 68 per cent. But it is unclear what impact it would have on other WA miners.