Iron ore spot market price assessment evolution

Francis Browne, Price Group | 6th November, 2012

Informa 5th Americas iron ore

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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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May* June July August Sept

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Price range narrows

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Market activity in real time

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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

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