Published on March 11, 2014
© 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 2
Introducing Platts • Founded in 1909, Platts is the world’s largest energy and metals information provider • Every day, more than US$10 billion in trading activity and term contract sales are based on Platts • Platts brings transparency to the market 3 Price Reporting$ Breaking News! Assessments Market Reports
Platts Global Positioning • More than 1000 professionals across 20 offices • Over 10,000 customers in over 150 countries 4 Singapore Beijing Shanghai Hong Kong Tokyo Melbourne London Moscow Dubai Sao Paulo Buenos Aires New York Washington Houston Pittsburgh Boston Denver Evergreen 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 5 Platts assessments
Pricing mechanisms Iron ore trade continues to evolve
IODEX 62% CFR China is Now a Global Benchmark 7
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 8
Floating contract pricing 9 • 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 10
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 11
• 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 12 Emergence of Floating Price Activity in Spot Market
Floating Price Activity in Spot Trading – Examples 13 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 15
2012 delivery 16
2013 delivery 17
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. 18
Long term average = $130 19
2013 Cal14 trade vs spot 20
2013 - Cal14 traded average $116.22 21
Volume of swaps cleared at SGX 22
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 23
Lump and pellet premiums Size matters
Lump assessments published in SMD 25
Pellet assessments 26
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 27
Methodology update Bringing more information and transparency
Launched a low Alumina 58%Fe assessment 29
Methodology guide 30
Dry bulk freight 31 • 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 Newsletter Real Time Market Data Analytics Trading Services • Polymer freight prices • Freight prices • Freight Fundamentals (fixtures, etc.) • Freight derivative prices • News on Freight
Thank you Always available to answer your questions
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