iron ore spot market price assessment evolution
DESCRIPTION
Francis Browne, Director, Market Reporting, from Platts delivered this presentation at the 2012 Americas Iron Ore conference. Americas Iron Ore is one of the most respected annual gatherings for North and South American iron ore markets and its agenda features: iron ore industry and market developments; new project developments and expansions in North and South America; overview of steel demand; iron ore spot market price; infrastructure and transport challenges and investment opportunities. For more information on the annual event, please visit www.immevents.comTRANSCRIPT
Francis Browne, Price Group | 6th November, 2012
Informa 5th Americas iron ore
Introducing Platts…
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Iron Ore
Assessment evolution
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Global hot metal/pig iron production
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Chinese iron ore imports
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Term and spot markets
Spot
Term
Spot markets are typically 5 to 10% of the overall market by volume
Performance issues collapse price
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Periods of satiability and range pricing
Price collapses quickly as cancelled term cargoes enter the spot market
Delivery into the spot market
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IODEX has a volatile history
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IODEX and 65% Fe
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The differential has decreased
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Relationship with Fe differential
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Quality differentials tend to (de)escalate
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IODEX correlates with Chinese steel prices
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Met Coal
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58%Fe differential to IODEX 62 has also decreased
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Contract pricing
All pricing is basis China
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Pricing evolves in long term contracts
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• Calculation is not universal
• October 2012 monthly averages
• October 2011 monthly averages
– IODEX = 115.55 dmtu basis = 5.59 (7.30)
– 65% Fe = 123.08 65 v IODEX = 7.53 (16.30)
– 1%Fe diff = 2.29 x3 diff = 6.89 (14.25)
VIU quality adjustments
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We were keen to offer the market a pellet assessment which reflects a provisional value for the month/quarter ahead.
Basis IODEX netback to Brazil
+ a quality adjustment to basis 65% Fe
+ a premium
Rebased to a dmtu value - FOB
Pellet premium – provisional pricing
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• An increasing number of contracts are now being priced off ‘floating’ prices
• The contract price is settled against an index value either at loading or discharge
• The final value tends to include a delta (+/-) to adjust for quality, market, location and time.
Floating prices
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• After Fe content most of the differential is focused on Silica and Alumina content
• Silica penalty changes depending on Chinese domestic mining production
• Australian high LOI ores
• Shipment time – delivery is becoming key
• Volume and discounts
• Market structure
About the delta
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Forward curve
The market is moving fast
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Iron ore swaps 350 million tons
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abr/09 jul/09 out/09 jan/10 abr/10 jul/10 out/10 jan/11 abr/11 jul/11 out/11 jan/12 abr/12 jul/12
OTC SGX LCH CME SMX
• Miners are naturally long and Steel mills naturally short• Hedge funds and banks providing liquidity as the spot market is
volatile• Iron ore has become a leading macro economic indicator• Traders are using that liquidity to mitigate risk
IODEX and the forward curve
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IODEX vs Front month swaps
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http://www.platts.com/newsfeature/2012/metals/plattsironore/index
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Trade Data
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0
10
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50
60
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May* June July August Sept
Platts
GlobalORE
CMBX
Benchmarks evolve with greater transparency, standards
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Phone surveys
Standardization of practices
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Market education process
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Participants named
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Price formation in real time
eWindows
Intermediate
Price range narrows
Trade becomes more dynamic
Market activity in real time
Transparency evolves
Advanced
Price Discovery – Market on Close (MOC)
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OffersOffers
BidsBids
Value is time-stampedCut-off for new bids/offers
DealsDeals
eWindows – arriving in 2013
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Thank you