Large-scale overhaul appeared due to losses of steel mills In the first half of 2022, affected by the pandemic and the slack downstream demand, steel profits continued to decline, especially after March. Steel mills were basically at losses when the pandemic broke out on a large scale. According to SMM survey, losses of steel mills were around 200-700 yuan/mt, and only a few mills could better control the production cost, and gained profits of 100-200 yuan/mt. According to the SMM profit model, since mid-March, losses of rebar have moved between 0-400 yuan/mt. Due to the losses, steel mills stopped production and began to overhaul extensively from the end of May. According to SMM statistics, since the end of May, 46 blast furnaces have announced plans to stop production and overhaul, and the impact on the daily pig iron output stands at 168,000 mt. In June, the pig iron output was reduced by 3.93 million mt. If the steel profits do not improve in July, the affected pig iron output will reach about 4 million mt, which will also reduce the demand for iron ore.

Steel mills began to look for cost-effective iron ore to reduce losses Mills took measures such as blast furnace maintenance and cost reduction to cope with the losses. According to some steel mills, they cut their costs through ore blending. I. Use low basicity sinter instead of expensive pellets and lumps. Steel mills continuously increased the proportion of sinter, because the cost efficiency of pellets and lumps is lower. When the proportion of sinter is high, to ensure the acid-base balance of blast furnace smelting, mills must reduce the basicity of sinter by mixing high basicity sinter and low basicity sinter. The proportion of low basicity sinter can reach up to 30% to replace pellets and lumps, and the basicity is about 0.6. Low basicity sinter can be mixed with high cost-effective concentrate to reduce the cost of pig iron to the maximum extent. In this way, the cost of pig iron could be reduced by 15-20 yuan/mt. Since 2022, the proportion of sinter has increased, while the proportion of lumps and pellets decreased significantly, among which the use of lump decreased more rapidly due to the high prices of coke. For example, a steel mill in Shandong raised the proportion of sinter to 100%, and a mill in Shanxi increased the proportion from 85% to 95%, even 97%. With the increase in sinter ratio, the average charging grade in blast furnaces also decreased, which leads to a decrease in pig iron output. II. Use cheap non-mainstream ore and low-grade ore to reduce costs. In the case of low profits or losses, steel mills not only sought low-grade ores but also increased their tolerance for aluminium and sulphur content in iron ores. The main low-grade ores in the market were FMG super special fines and mixed fines, and the discounts were greatly reduced. Some steel mills were interested in Indian fines and Sierra Leone iron ore with high aluminium content. According to the import data, from January to May 2022, the import volume of Indian fines and Sierra Leone ore increased sharply. However, the use of these ores led to a higher aluminium content in blast furnaces. Therefore, steel mills had to mix domestic low-aluminium iron concentrate or cheap low-aluminium Brazilian ore with these ores to reduce the aluminium content. In addition, the popular low-grade ores in the market include MB, PMI fine, WB fine, SM fine, Laos ore, etc. Besides, some steel mills even mixed sulphuric acid slag and red mud in their production.

As the cost efficiency of low-grade ores decreased, the cost efficiency of lump ores and pellets will rise somewhat Steel mills were all sourcing Indian fines and Sierra Leone iron ore. On one hand, as India increased the export tariff of iron ore, the import of Indian fines will drop sharply. On the other hand, these ores get high aluminium content, which is not conducive to blast furnace operation. Mills need low-aluminium Brazilian ore or domestic ore to stabilise the blast furnace production. Secondly, some steel mills, which have adjusted the ore varieties more frequently, said that the cost efficiency of low-grade ore was extremely low, and they had switched to using mainstream ores such as MNPJ. As mills increased the purchase of low-grade ores, the discounts of these ores fell sharply. Finally, with the decline in the demand for lumps and pellets earlier, the premiums of lumps and pellets were greatly reduced, and some mills began to increase the proportion of lump ore and self-produced pellets. Generally speaking, the mainstream ores in the future will be lumps and self-produced pellets.

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