BHP's iron ore brand specification revisions see limited demand upside

Asia iron ore market participants saw a limited upside to BHP's medium-grade brands after the Australian miner announced revised specifications for a slew of iron ore with loadport laycan on or after July 1, 2024, though the imminent impact on pricing was already accounted for by stakeholders in the weeks leading up to the news, sources said June 5.

BHP has lowered the iron content for two of its flagship medium-grade iron ore – Mining Area C Fines (MACF) and Newman High Grade Fines (NHGF), among others, to 60.6% Fe and 61.7% Fe respectively. Other brands of iron ore with Fe content adjustment included Yandi Fines and Newman Blend Lump, too only applied for loadport laycan on or after July 1.

For medium grade fines, MACF cargoes with a loadport laycan starting on or after July 1 would reflect typical specifications of 60.6% Fe, 2.5% Alumina, 4.3% Silica, 0.08 % Phosphorus, while that of NHGF would reflect typical specifications 61.7% Fe, 2.55% Alumina, 4.75% Silica, 0.095% Phosphorus, and that of Jimblebar Fines (JMBF) reflect typical specifications of 60.5% Fe, 3.3% Alumina, 4.7% Silica, 0.115 % Phosphorus.

A China-based mill source pointed out that discounts for BHP products against the 62% Fe index are likely to see sustained weakness following the change in specification.

He added that with a lowered Fe content coupled with an increase in contaminant content, it may reduce the usage of MACF and NGHF in mill blast furnaces though differentials will adjust to match the qualities of the brands.

"There is a possibility that we see shifts in the mainstream medium grade fines where better quality medium grade fines could make a stronger footprint in the raw material mix."

Similar sentiments were echoed by some others, particularly with the relatively more drastic revised specifications among the lot on its NGHF.

"Mills have for a while now reflected that the Fe content for NGHF has changed, where we see a bigger adjustment for its iron content this time," said a north Asia-based iron ore trader.

The trader, however, added that the pricing mechanism for these brands will adjust to suit the new specifications, so demand side factors will remain limited.

"After this adjustment, Newman's premiums and demand may struggle to recover as the specifications seemed to be not strong enough to compete with the other mainstream Australian brands," a China-based trader source said adding, "Previously the market supported Newman fines despite its high silica levels for its high Fe content, but that reason would be hard to justify now."

Platts observed the first transaction of a cargo each of MACF and NGHF on June 4, for July 1-10 loading at $100.80/dmt CFR China basis 60.6% Fe, on COREX, and $105.1/dmt CFR China basis 62% Fe, on globalORE, reflecting discount equivalent of $4.35/dmt and $2.1/dmt over the July average of Platts IODEX respectively, using swaps at the time of the trades.

A Singapore-based trader said there should be no drastic shifts in the near term buying appetite as he reckoned reduced specifications will result in lower prices, so there shouldn't be much changes to demand fundamentals.

"We saw MACF and NGHF differentials flipped from premium to steep discounts [over 62% Fe index] earlier, which was due to the reduction in quality," he said.

"It's normal [to see a change in specification], we have already heard about reduced specifications on BHP brands earlier," said a second China-based iron ore trader.

Lower Fe, higher Silica Newman Blend Lump

In addition to revising specifications for its sinter fines products, BHP has also adjusted the typical specifications for their lump products, including its Newman Blend Lump (NBL).

The NBL cargoes with a loadport laycan starting on or after 1 July would reflect an updated typical specification of 62.2% Fe, 1.65% Alumina, 3.6% Silica and 0.08% Phosphorus.

Market sources highlighted concerns over the drop in Fe content and increased Silica and the impact on the competitiveness against the other mainstream Australian Pilbara Blend Lump (PBL), a flagship product by miner Rio Tinto.

"Now that NBL's typical Fe specification is on par with PBL after this revision, and its silica content has increased as well, which may put off some demand for NBL," another China-based trader source said.

"The changes to NBL would possibly increase the brand spread between the two mainstream lump brands in the coming weeks, but mills would have to first use the new batches of lump in their blast furnaces before the market is certain of the impacts of these specification changes," an international trader source added.