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Iron ore spot market price assessment evolution

May 25, 2015

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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.com

  • 1. Francis Browne, Price Group | 6th November, 2012 Informa 5th Americas iron ore

2. Introducing Platts Platts is a specialist energy market news and price publisher founded by Warren Platt over 100 years ago Price Reporting Assessments Market ReportsBreaking News $ ! 3. Extensive Global Reach In the last year we have increased to more than 1000 people with more offices Mexico City Boston Hightstown Pittsburgh So Paulo Perth, Melbourne Lausanne 4. Platts continues to grow 4 5. Our metals portfolio Precious Minor Base Ferro Alloys Stainless Steel Iron ore Coking Coal Scrap Bulk Ores Metals Coal Shipping 6. Iron Ore Assessment evolution 6 7. Global hot metal/pig iron production 7 8. Chinese iron ore imports 8 9. Term and spot markets Spot Term Spot markets are typically 5 to 10% of the overall market by volume 10. Performance issues collapse price 10 Periods of satiability and range pricing Price collapses quickly as cancelled term cargoes enter the spot market 11. Delivery into the spot market 11 12. IODEX has a volatile history 12 13. IODEX and 65% Fe 13 14. The differential has decreased 14 15. Relationship with Fe differential 15 16. Quality differentials tend to (de)escalate 16 17. IODEX correlates with Chinese steel prices 17 18. Met Coal 18 19. 58%Fe differential to IODEX 62 has also decreased 19 20. Contract pricing All pricing is basis China 20 21. Pricing evolves in long term contracts 21 22. 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 22 23. 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 23 24. 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 24 25. 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 25 26. Forward curve The market is moving fast 26 27. Iron ore swaps 350 million tons 27 0 50 100 150 200 250 300 350 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 28. IODEX and the forward curve 28 29. IODEX vs Front month swaps 29 30. http://www.platts.com/newsfeature/2012/metal s/plattsironore/index 30 31. Trade Data 31 0 10 20 30 40 50 60 70 80 90 May* June July August Sept Platts GlobalORE CMBX 32. Benchmarks evolve with greater transparency, standards Initial Stage Tracking direct trade Phone surveys Standardization of practices Assessments daily Market education process Assessment windows Participants named Firm, open bids/offers Price formation in real time eWindows Intermediate Price range narrows Trade becomes more dynamic Market activity in real time Transparency evolves Advanced 33. Price Discovery Market on Close (MOC) 33 OffersOffers BidsBids Value is time-stampedCut-off for new bids/offers DealsDeals 34. eWindows arriving in 2013 34 35. Thank you [email protected]