francis browne, platts - floating prices in the seaborne market
DESCRIPTION
Francis Browne, Editorial Director – Price Group, Platts delivered this presentation the 2014 AJM Global Iron Ore & Steel Forecast Conference and Exhibition. The annual AJM Global Iron Ore and Steel Conference is the world's largest gathering of iron ore and steel executives. Over the past 16 years thousands of industry personnel have attended, recognising it as the conference that delivers vital information on the status of the global iron ore and steel sectors. For more information, visit http://www.globalironore.com.au/homeTRANSCRIPT
© 2013 Platts, McGraw Hill Financial. All rights reserved.
Floating prices in the seaborne market
Francis Browne, Editorial Director, Price Group
Global Iron ore & Steel forecast, Perth, 11 March, 2014
Agenda
• Pricing mechanisms
• Trade volume
• Size matters; pellets, lump and premiums
• Methodology update
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Introducing Platts
• Founded in 1909, Platts is the world’s largest energy and metals information provider
• Every day, more than US$10 billion in trading activity and term contract sales are based on Platts
• Platts brings transparency to the market
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• Over 10,000 customers in over 150 countries
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Boston
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Hightstown
Westminster
Platts Focus: The Spot Market
• Spot prices are established at the margin
• Term contracts are priced on spot market assessments
• Derivatives settle off spot prices
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Platts assessments
Pricing mechanisms
Iron ore trade continues to evolve
IODEX 62% CFR China is Now a Global Benchmark
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There is no universal price mechanism
• All mechanisms now use a published base price
• Many LTC’s are now priced monthly with a provisional value before shipment
• Growing portion have migrated to floating prices
• Shorter term pricing has led to better contract performance
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Floating contract pricing
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• Most floating prices are basis an index value +/- a delta
• Typically they price a quotation period (QP) against the average of an index over a specified period.
• Usually that period is a month, it could also be loading dates either side of a B/L date or NOR dates
What do Price Differentials Express?
• Why does the market apply premiums or discounts to published benchmark prices?
– Quality differences (Chemical, Physical, Metallurgical)
– Locational differences
– Terms and conditions differences
– Most importantly; timing differences
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Typical examples or floating price quotes
• Month average plus/minus delta in $/mt – Month QP +2
– Month QP -2% +3
• Notice of readiness (NOR) or B/L date – NOR +/-5(days) -2
– B/L +/5 +VIU +3
• Periods around shipping dates are often the average of index, 2 days prior - B/L date - 2 days post. So called 2-1-2
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• Spot deals on index-linked basis have increased also as participants seek to mitigate price volatility
• Differentials to the published value used as expressions of differences in quality/VIU and timing
• Trend mirrors evolution in other cargo markets like oil, in which a large portion of spot transactions are index-linked
• Market participants buy or sell physical on a floating basis, and hedge their exposure in derivatives on a fixed-price basis
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Emergence of Floating Price Activity in Spot Market
Floating Price Activity in Spot Trading – Examples
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Differential expression
Actual examples
Product Pricing basis Quotation period
Flat price 61%-Fe Pilbara Blend Fines 62%-Fe IODEX +$1/dmt
Month of BL
63%-Fe Standard Sinter Feed Guaiba (SSFG)
Platts IODEX + 1%-Fe differential +$0/dmt
5 days before and after NOR (discharge port), excl. NOR date
61.8%-Fe Brazilian fines with 7.4% SiO2
IODEX +flat-price discount per 1% silica exceeding 4.5% (bidder seeking smallest discount quantum wins cargo)
10 days before and after BL
63%-Fe Newman Lump IODEX +$0.16/dmtu Month of delivery
58%-Fe Indian fines Platts 58%-Fe +$0/dmt minus Freight
5 days on and after offer date
Percentage 57%-Fe Super Special Fines dmtu value of 62%-Fe IODEX -3% 5 days on and before NOR (discharge port)
Trade volume
Spot market activity
Observed trades Jan 13 – Jan14
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2012 delivery
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2013 delivery
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Spot market transactions
• In 2013, Platts observed 475 trades
• 8% of the total seaborne volume China imported that year.
• In line with our view that most spot markets are around 5-10% of delivered volume
• LTC performance is good when there is less price incentive to buy spot.
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Long term average = $130
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2013 Cal14 trade vs spot
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2013 - Cal14 traded average $116.22
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Volume of swaps cleared at SGX
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DCE traded 470 million tons in 6 months
• Open interest in currently 419,000 lots equivalent to 20 million tons
• Pricing tracks offshore movements
• Most active month has moved to September
• Strong correlation with the SHFE rebar contract
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Lump and pellet premiums
Size matters
Lump assessments published in SMD
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Pellet assessments
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Pellet assessment formula
• Previous months average netback
• Pervious months average Fe differential (x3)
• Market assessed premium (market assessed)
• Factored to 65% to give a dmtu value
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Methodology update
Bringing more information and transparency
Launched a low Alumina 58%Fe assessment
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Methodology guide
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Dry bulk freight
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• Thermal Coal freight prices • News on Freight, Rail and Ports • Current Vessel Fixtures
• Sugar freight prices
• Raw Material freight prices • News on Freight
• Steel freight prices • Freight derivatives prices
Thermal Coal
Sugar, Polymers
Iron Ore, Metallurgical Coal and Alumina
Steel
Dry Bulk Shipping Products
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• Polymer freight prices
• Freight prices • Freight Fundamentals (fixtures, etc.) • Freight derivative prices • News on Freight
Thank you
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