The iron ore market is undergoing transformations based on the Value in Use (VIU) model. This model, due to global pressure to reduce carbon, places greater emphasis on the chemical characteristics of iron ore and results in the separation of high-quality and low-defect iron ores from lower-quality products.
Definition of Value in Use and Its Impact on Cost
Value in use generally refers to the total economic value that an iron ore provides to the specific blast furnaces of steelmakers. This value is calculated as cost savings or additional profit compared to reference iron ore and is considered a dynamic and customer-centric metric. In other words, not all iron ores are equal.
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Quality Differences in Iron Ores and Their Impact on Cost
A reviewed chart shows clear differences in impurity profiles among global iron ore products. The Northern system in Brazil and blocks 3 and 4 of Simandou in Guinea are recognized as top areas with high quality, having very low silica levels (less than 3%) and moderate aluminum levels. In contrast, major iron ore producers in Australia are mostly in the medium to low-quality segments.
Producers such as BHP Group Ltd. and Rio Tinto Group have addressed the reduction of iron ore specifications, indicating quality weaknesses in their operations in Pilbara. The reduction of the IODEX specification to 61% from 62% Fe, effective January 2, 2026, is seen as a sign of this multi-year trend.
Given transportation costs and increased scrutiny on steel furnaces, high-quality iron ores have gained significant attention, and their advantages are increasing. High-quality ores reduce coke consumption and slag production, directly impacting CO2 emissions intensity in hot metal production.
Ultimately, producers capable of providing high-quality and low-defect iron ores will win in this new market. The mines of Vale SA in the Carajás system are a prime example of this, where the high quality of iron ore and low impurity levels continue to influence the market.
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