According to The Australian Financial Review, the gaping delta between the prices paid for high grade and lower grade iron ores should ease in coming months as Chinese steel mills increase their use of lower grade products, according to analysts.
During the three months to March, the price for 62 per cent iron ore averaged $US85.52 per tonne, compared to an average price of $US52.96 per tonne for 58 per cent iron ore. On Thursday the delta was $US29, with the products at $US65 and $US36 respectively.
Chinese steel mills have been motivated to buy higher grade iron ore to maximise production as the price for coking coal, also used to make steel, soared and regulators restricted steel production during winter due to pollution concerns.
A stronger-than-expected report card for China's economy in the first quarter should have provided a boost to the iron ore industry but instead it had the opposite effect, with prices dropping to their lowest in five months.
Record levels of crude steel production, iron ore imports and stockpiles have focused investors' minds on the outlook and there are significant concerns about oversupply and ongoing demand.
Investors are concerned the strong result for the first three months of the year has reduced pressure on the government to buttress the economy with increased infrastructure spending.
Li Xinchuang, vice-president of the China Iron and Steel Association, predicts the average price for iron ore this year will be around $US65 a tonne (On Friday it was $US86.22).
"We saw first-quarter GDP rise by 6.9 per cent but the government's target is 6.5 per cent for the full year so this means that we won't see stronger growth over the rest of the year," he said.
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