Iron ore prices finished higher on Tuesday, their second straight session of gains as peak steel demand season gets underway.
Chinese steel demand picks up in September and October after the summer lull as construction activity increases, but this year demand started to pick up in late summer as Chinese steel makers rushed to increase output ahead of the year-end government crackdown on polluting industries. Chinese authorities have ordered major key steel producing to cut output by up 50% this winter to combat pollution.
But, even as iron ore has been stockpiled earlier than usual, port inventories continue to drop.
Stocks of iron ore at Chinese ports dropped for a sixth straight week to 133-million tons last Friday, to its lowest since early May, and this drove increased interest in iron ore purchases this week.
Meanwhile, China’s Dalian Commodity Exchange on Wednesday announced that it will adjust the quality standards for deliveries of iron ore in order to meet market demand for high-grade ore. Demand for higher grade iron ore has increased since China embarked upon an anti-pollution campaign.
This campaign has so far resulted in the closure of hundreds of steel plants producing lower quality steel and has increased mills’ use of higher-grade iron ore. Higher quality iron ore produces more steel per ton processed and reduces emissions because less cake is used during smelting.
China’s new standards lower the allowable amount of sulfur, lead, zinc and arsenic in 62% iron ore deliverable under the iron futures contracts on DCE, according to a statement on the exchange website. They also put a premium of 1 yuan per ton for deliveries of iron ore with iron content higher than 62% and a 1.5 yuan per ton discount for deliveries below. These changes will come into effect with the September 2018 futures contract.