The Brazilian iron ore producer, Vale, is planning to launch a lower grade iron ore in the coming months to compete in the Asian markets, particularly China.
Sources indicate that Chinese clients, who account for 62 percent of Vale's iron ore sales, are experiencing reduced margins due to the low price of steel products. Reducing iron ore prices are essential for increasing the margins of Chinese integrated producers.
Currently, the premium of the Brazilian high-grade product, with an iron content of 65 percent, compared to the 63 percent Australian iron ore, is approximately 6.0 percent. This is down from peaks of 20 percent in 2021, suggesting that Vale is not receiving additional compensation for the higher quality of its iron ore.
As high quality iron ore involves additional expenses in concentration, reducing these costs will enable Vale to lower the sales price of the resulting lower grade ore, thus increasing margins for both Vale and its Chinese customers.