Francis Browne - Platts - What's driving iron ore prices?
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Transcript of Francis Browne - Platts - What's driving iron ore prices?
© 2013 Platts, McGraw Hill Financial. All rights reserved.
What’s driving iron ore prices?
Francis Browne, Editorial Director, Price Group
Americas iron ore, Rio de Janeiro, November 10th, 2014
Agenda
• Price review, physical and forward
• Supply base, brands and impurities
• Size matters; pellets, lump and concentrates
• The Atlantic basin
29
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
30
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
31
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
32
Platts assessments
IODEX physical and paper
33
Chinese steel prices
34
Steel prices in China have reduced
35
Physical and derivative markets
36
0.8
0.85
0.9
0.95
1
1.05
SHFE RB
Tang Billet
IODEX
DCE
Chinese steel margins
37
Chinese domestic concentrate prices
38
DCE volume in millions of metric tons
39
0
200
400
600
800
1000
1200
Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14
SHFE rebar volume in millions metric ton
40
0
100
200
300
400
500
600
SGX iron ore derivatives in metric tons
41
Price correlation or convergence?
42
0.8
0.85
0.9
0.95
1
1.05
IODEX
DCE
DCE delivery and IODEX window do not converge
43
DCE most liquid contract is always ahead of IODEX delivery window
DCE active month now switches to May 15
44
Focus and Relevance
45
• Platts benchmarks are used to price term contracts
• Futures settlements are often tied to spot market Platts covers
• Derivatives “price out” against Platts spot price assessments or futures settlements
Futures
OTC Derivatives
Term Contracts
Spot
Spot activity concentrated around cargoes arriving 4-5
weeks after transaction date (middle of 2-8 week forward
assessment window)
0
5
10
15
20
25
30
35
40
45
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74
Nu
mb
er o
f ca
rgo
es
Days forward from transaction date
Cargo delivery timings by origin
Australia
Brazil
India
South Africa
(Spot transactions observed Jan-Dec 2012)
Source: Platts
Concentration of spot activity determines the “mid window” that is the target of Platts normalization for timing
Spot activity concentrated around cargoes arriving 4-5
weeks after transaction date (middle of 2-8 week forward
assessment window)
0
5
10
15
20
25
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70
Nu
mb
er
of
carg
oe
s
Cargo delivery timings by origin
Australia
Brazil
India
South Africa
(Spot transactions observed Jan-Dec 2013)
Source: Platts
Concentration of spot activity determines the “mid window” that is the target of Platts normalization for timing
Days forward from transaction date
Spot Activity Concentrated Around Cargoes Arriving 4-5 Weeks After
Transaction Date (Middle Of 2-8 Week Forward Assessment Window)
48
Concentration of spot activity determines the “mid-window” that is the target of Platts normalization for timing
Source: Platts
Days forward from transaction date
Prompt Deal Carries Time Premium in a Backwardation
49
135
137
139
141
143
145
147
149
Weeks
Premium
0
Mid window 8 2 0
Deal at $145 for cargo arriving 3rd week forward
Mid window: Target point of normalization
Deal at $140 for cargo arriving 7rd week forward
Where does the data come from?
50
Grade differentials to IODEX 62
51
Steel demand/price impacts iron ore diffs
52
More differentials and size data
53
Meeting our IOSCO commitments
54
Methodology update
Providing more information and transparency
We launched a separate freight report
56
What's done and what is being considered
• Dec 13: Launched a low Alumina 58% Fe assessment
• June 14: Launched daily 1% impurity differentials
• July 14: Launched Dry Bulk Freight Wire
• Q4’14: Research specification changes to the 65% Fe assessment
• H1’15: Research volume change to the IODEX specification
• Offer more data and analysis through technology partnerships such as MVS
57
Thank you
Happy to answer questions and discuss price assessment methodology