Since China started to rationalise its steel capacity in 2016, the price spread between low-grade and high-grade iron ore has widened substantially. In addition, low-grade ore discounts have become more sensitive to steel margins than to coke or coking coal prices. We have established a model to quantitatively explain why these trends are happening and how they will progress in the future. Based on the model results, we expect the long-term discount for low-grade Fortescue Metals Group Super Special Fines to be 24% and the premium for high-grade Vale Carajas fines to settle at 20%. Our forecast price spreads are narrower than today's spot spreads of more than 30%, but wider than the 10% to 15% price spreads that prevailed before China's steel supply-side reforms began in 2016.