New regulations drive demand for higher quality iron ore

Concerns about the ongoing strength of the international steel market, and consequently the iron ore market, appear unfounded on the basis of recent projections.

Although the market is evolving, the commodity as a whole remains strong, with forecasts suggesting that this will remain the case.

Chinese steel producers however are faced with a central government that is increasingly seeking to clamp down on some of the practices that have been common within the industry nationally. The CCP have passed a succession of progressively more strident measures to combat climate change and address air quality concerns, with steel producers having been singled out for their particular contributions to the deterioration of the air quality in areas of the mainland. The government’s introduction early last year of a new system of emissions licences and the imposition of an emissions tax were viewed as only the first steps in their efforts to combat the problem and protect the populace.

As a result, Chinese producers are driving a global push for top-grade iron ore product, which allows them to produce steel more efficiently, and therefore reduce environmental impacts.

This demand for a higher grade product that simultaneously produces lower emissions has driven producers towards using iron ore pellets. The advantages of pellets are twofold; they are cost-effective and easily transportable, while their shape facilitates airflow between the pellets within the furnace, reducing the carbon dioxide emissions and the overall environmental impact of steel production.

This is particularly relevant as, according to Wood Mackenzie, peak Chinese steel production is not anticipated to occur until 2029, an assertion supported by Rio Tinto’s own forecasts which projected the country would peak in around 2030. Meanwhile, Chinese environmental regulation trends are only headed in one direction, making it all the more imperative that producers are able to offer a form of iron ore that fulfills their needs both today and in the future.

Australian miners are particularly well placed compared to their Chinese counterparts owing to the natural makeup of their respective mines.

Chinese mines offer a much lower grade iron ore, which may not always pay off to process, especially as the Chinese government has introduced environmental regulations around processing low grade iron ore due to the large carbon emissions they caused. Mines also closed down simply because in some cases it is cheaper for China to import high grade iron than to try processing their own lower grade product.

Australian miners can provide the same amount of useable resource excavating less material, making their profitability potential considerably higher.

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Carpentaria Resources trades under the ASX code: ‘CAP’

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