In this video, Marcel Goldenberg, metals methodology and pricing specialist, explains how the Platts ferrous scrap HMS 1/2 80:20 CFR Turkey benchmark is assessed and what the underlying methodology behind the assessment is.
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Hello and welcome to this Platts methodology video about the Platts Heavy Melting Scrap 80:20 CFR Turkey assessment. I am Marcel Goldenberg, Methodology Specialist for Metals.
Our Platts HMS 80:20 CFR Turkey assessment is one of our European Benchmarks meaning that future contracts settle on this number and as such there is a very large interest in this number. In order to provide the highest level of transparency around our methodology we would like to invite you to listen to how exactly we assess our CFR Turkey Scrap number.
First and foremost all of our methodologies are freely available to everyone on the internet on the below stated website.
You can read up on what we are talking about today in these documents and review them again in your own time.
Now, I think the fundamental importance of a robust price assessment, no matter what the methodology behind it is, is the market reach and network of the pricing team. You are part of the Raw Material pricing team here at Platts so could you explain to our audience how important a well-balanced and plentiful source is for a good assessment and what proportion of the market you are talking to on a daily basis?
Yes, so in order to arrive at a number that is well-balanced and avoids bias we're speaking to a wide range of sources, including buyers, sellers, agencies and trading houses that we all screen beforehand.
On the buy-side, we speak to the majority of Turkish steel producers that import ferrous scrap into Iskenderun, Marmara, Izmir, Samsun and Eregli. On the sell-side we are regularly in contact with recyclers and merchants from Europe, the Baltics and the US, as well as short-sea merchants. On top of that we also speak to agents that work on behalf of sellers in Turkey and several trading houses.
So we obtain a lot of trade information, bids and offers from those sources and that gives us a well-rounded picture of the market. The graph shows that the type of market sources we speak to is fairly spilt.
Very good, at Platts we capture a very large number of deals, bids and offers in the market which are send out in real time to whole market all of which is underpinned by talking to an equal share of buyers and sellers. So, could you explain to our audience how exactly we gather this data and elaborate on what exactly a "survey market is?
So unlike some of our other markets, the metals market is a pure survey market, which means we essentially survey a wide range of market participants on a daily basis.
This is done usually directly via phone, through instant messaging, email or even in person to discover deals along with other significant information that informs price. These could be offers, bids, indications of current bid or offer levels and general indications of where market value lies at that specific day. All the price information we receive we then publish to the market as heards, on the one hand to inform the market, but also to give market participants a chance to comment on these indications.
In survey markets, editorial judgement still plays an important role in the assessment we create. Indeed, talking to the all these sources also allows us to capture a big part of the deep-sea cargoes and also some short-sea cargoes that are traded in the market.
I think at this point it is important to point out what our actual specifications are and what we do when we obtain data that does not 100% fit these specifications
Our Platts HMS 80:20 CFR Turkey assessment is, as the name suggests, a Turkey import number. The Platts methodology is designed to be a mirror-image of how the majority of physical scrap trades in the market and as such we are assessing scrap shipments with a minimum volume of 10,000 mt which needs to arrive in Turkey between 3-8 weeks from when the deal was done. Payment terms are "at sight" and the currency we assess in is US Dollars. All our assessments are timestamped to 4.30 pm London time and we assess the value of the Scrap market closest to this time each day.
If we receive an indication or trade that does not match these exact specifications we may take this into consideration but will normalize this back to Platts base standards according to market consensus.
Now, I think we have laid the ground work for our assessment and at this point we can look into how we actually assess Scrap.
Let's look at a day where we have bids offer and trades: In such a scenario we would look at all the information received and when we receive this information. A trade received in the morning may not be reflective of the value at 4.30pm anymore if the market moved on from where it was earlier in the day. In fact this is a basic principle of our methodology that Price is a function of time.
Now, if we assume the deal happened as close as possible to our cut off time at 16.30 pm London time our team would then oftentimes still need to normalize the cargo to our base conditions as most scrap cargoes also include other grades of scrap like shred and P&S which is of higher quality to our standard assessment. This normalization would also look at market-based scrap quality differentials across regions and specific sellers and can include other factors, including financial factors, that might have contributed to the final price of the deal. Here editorial judgement sometimes can play an important role, but by the end of the day we would be using all the bids, offers, trade indication, trades and any other information that may inform price but test all these market values for repeatability.
But of course the audience will now be asking "but what if there are no deals on a day, how do you assess then?".
In which case the principles we just explained above would still hold. In fact, looking at this graph.
We can see clearly that we are zeroing in on the value between the bid and the offer. If there are no trades done on a certain day this does not mean that prices will be unchanged. If bids or offers repeatedly push through the previous assessment this can indeed move the assessment up or down.
What is further important to note is that for offers and bids, we look at the most competitive offer or bid in the market and we do not just average out the available offers or bids across market. This makes sense because as a buyer you would always take the lowest offer, while as a seller you would always lift the highest bid.
So, while we will consider all data points received during the day some data points will be more meaningful than other when it comes to the end of day assessment. This goes hand in hand with something we call editorial judgement..
Editorial judgement basically means looking beyond the simple number for a trade, bid or offer we get and using our market insight and experience in certain cases just as you explained before. But to take this one step further, once we have established which indications are the most competitive and if these challenge the previous assessment there is often still a wide range of possibilities where the final assessment can be. For example this could be 5 cents below the most competitive offer that challenged the previous assessment, or 25 cents below the most competitive offer that challenged the previous assessment. To make this decision we will use the data points heard during the day, the sentiment in the market as well as our own market expertise.
Now, we hope this video has provided you even more insight into how Platts assesses its Scrap Benchmark, but as always please feel free to reach out to anyone of us at the below stated email
Thanks for watching and until next time.