SUBSCRIBER NOTE: Platts opens consultation on methodology changes to TSI-62%, IODEX

S&P Global Platts is opening a formal consultation regarding possible methodology changes to The Steel Index Iron Ore Fines 62% Fe price series (TS01021) and Platts IODEX (IODBZ00) assessment to be made on January 2, 2018. Platts has received regular informal feedback and industry support has increased to align the methodologies of these two benchmark price series. Aligning methodologies would mean that the IODEX and TSI-62% price series would be published as two identical values from the start of 2018. This would eliminate this basis risk for market participants looking to hedge their IODEX-linked physical iron ore exposure via the derivatives contracts settling against the TSI-62% index. Feedback has been supportive of a move towards an end-day methodology for its TSI-62% index, mirroring the process used in Platts IODEX (IODBZ00) assessment. This would be an inclusive price assessment process, using transactional data from a multitude of sources according to a clear data hierarchy. Throughout this consultation, Platts seeks feedback on the timing of this potential methodology change, as well as the process and roadmap for such a shift. This consultation does not impact methodology changes already due to come into effect in January 2018 for the TSI-62% index. For full details of those changes, please consult: http://plts.co/QkJH30bFAN8. TIMESTAMP: The iron ore market has shown increasing signs of visible intra-day price movement. In order to reflect this, a timestamp of 5.30 pm Singapore time would be used for TSI-62% to help determine fair value of iron ore traded on a CFR Qingdao basis. 5.30 pm falls in a period of heightened trading activity in the iron ore market and aligns with the timestamp for IODEX. At present the TSI-62% index takes into account data reported until 6:00 pm Singapore time. Platts published a white paper on April 25, 2017 detailing the intra-day price movement present in the iron ore market. This paper can be found at: http://plts.co/QPWB30bFAQH. This change would remove volume-weighted averaging from the TSI-62% index in order to fully reflect intra-day movement in the final index value.

DELIVERY WINDOWS: Platts proposes to change to a pure delivery window for the TSI-62% index of 2-8 weeks forward rather than one "within 8 weeks of the transaction date." Platts has observed that the vast majority of comparable spot trade occurs within this 2-8 week forward delivery window. Market participants may value cargoes differently depending on their expected CFR Qingdao delivery date. As a result, by using a delivery window of 2-8 weeks forward, Platts would be able to determine the value market participants place on cargoes due for delivery at different points of time in the future. The average of the physical forward curve indicated by transactional information across this 2-8 week delivery window would be used to form the final index price. This way, the data points collected can be used most effectively in the final published value.

IODEX SPECIFICATION: Platts proposes to change the underlying specifications for the IODEX assessment to match those due to come into effect for TSI-62% from January, 2018. In summary, this would see small changes to silica, alumina and phosphorus levels, with the minimum lot size also altering. Using historical impurity penalty values, these changes would amount to a negligible value difference between the present specifications and the proposed ones, but would align IODEX further with the most liquid iron ore brands traded on a CFR Qingdao basis. Specifically, it would mean the following changes: Measure Present Proposed Fe 62% 62% Silica 4.5% 4% Alumina 2% 2.25% Phosphorus 0.075% 0.09% Sulfur 0.02% 0.02% Moisture 8% 8% Tonnage 35,000 t 50,000 t

INDEX-LINKED TRADE: Hedging and index-linked trade have become increasingly important in the spot market and focus has therefore turned to the price difference between IODEX and TSI-62%. By aligning the TSI-62% and IODEX methodologies, this price difference would be removed. Not only would this eliminate this basis risk for market participants, it would allow for greater certainty when converting index-linked indications (trades, bids & offers) to a fixed price. Index-linked trade now makes up a significant portion of the spot market. Furthermore, by combining approaches, the paper forward curve may start to more closely reflect the forward curve observed in the physical market.

NORMALIZATION: TSI-62% impurity normalizations would be determined using inter-brand differential comparison and indications received from active market participants. TSI-branded, published impurity bands would be changed to match those currently used in the IODEX assessment. For a full list of impurity bands published for the IODEX assessment, please consult page 9: http://plts.co/BMzV30bFAVO. Medium grade fines (60-63.5% Fe) transactional information would form the basis of the TSI-62% index value. TSI-62% would be published to two decimal places, rounded to the nearest $0.05/dmt.

INDEX RATIONALE: Platts would publish a full, transparent index rationale every day on the back of market demand for this. The rationale would describe how reported transactional information was used in TSI-62%, and therefore how the final value was arrived at. In order to do so, Platts would have to discontinue receiving submissions pursuant to the existing TSI Data Provider agreements for companies submitting to TSI's Iron Ore indices.

FEEDBACK: Platts invites comments, questions and other feedback on these proposals by June 15, 2017. Please submit any feedback, comments or questions to pricemethodology@spglobal.com. For written comments, please provide a clear indication if comments are not intended for publication by Platts for public viewing. Platts will consider all comments received and will make comments not marked as confidential available upon request.