Following a period of market consultation, Platts will launch five iron ore brand assessments reflecting the tradeable value of the most liquid grades in the spot market. In this video Ciaran Roe, global metals pricing manager, describes the rationale and method to be used for these new assessments.
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Hello and welcome to this S&P Global Platts methodology video.
On June 22, 2018, Platts published a subscriber note seeking market feedback on a proposal to launch five medium grade fines brand assessments.
Following a period of market consultation, Platts will launch brand assessments on a fixed and floating price basis for the following iron ore brands:
- Pilbara Blend Fines
- Brazilian Blend Fines
- Newman High Grade Fines
- Mining Area C Fines
- Jimblebar Fines
Two developments in iron ore prompted market participants to request Platts to launch brand assessments for seaborne iron ore:
- The growth in index-linked trade in the iron ore spot market: in fact, certain brands are almost wholly traded on a floating price basis against the monthly average of an index
- Brands' differentials to the underlying index have become more reactive to changes in market dynamics, particularly to rapid changes in sinter feed preferences of Chinese steelmakers
These brand assessments should add more clarity to how Platts is viewing the value of different, widely-traded brands in the spot market at a consistently-measured time of day (5.30pm, Singapore time).
The assessments will not have any effect on the existing medium grade iron ore fines benchmarks published by Platts – IODEX and TSI-62%.
IODEX / TSI-62% represents the tradeable value of medium grade fines each day; whereas brand assessments are specific to a certain brand of iron ore.
Platts will use the same data hierarchy and data for its brand assessments as it does for its spot market assessments, where Platts collects spot market data from market participants across the supply chain.
Transparency is prioritized in this data hierarchy.
Transparency means: full details around a trade, bid or offer, and full knowledge of the counterpart(ies) involved in the piece of market information.
In fact, Platts has been publishing notional brand values on a fixed and floating basis for some time. The difference between the notional values and the brand assessments is the timestamp, which will be 5.30pm for the brand assessments, whereas the notionals have been published at 3.45pm.
Fixed price brand assessments will aid analysis of market dynamics, as witnessed in this graph, which shows the differential between Pilbara Blend Fines and Brazilian Blend Fines having turned on its head recently.
This is an example of the changes in pricing dynamics that create the market need for an independent, third party assessment of the daily value of the largest medium grade iron ore brands.
There are a number of factors that affect the value achieved in an index-linked trade. Timing is an important one.
Timing in this context means:
- the time of day a trade is concluded;
- the estimated time of delivery of the cargo;
- the quotation period of the index-linked trade (i.e. whether the cargo is traded against August or September average of the index + a differential)
Platts' normalization procedures for the time of day include pricing against a timestamp each day (5.30pm Singapore time) to ensure consistency in its price assessments.
For the estimated time of cargo delivery, Platts can normalize using the swaps forward curve to compare data on a like-for-like basis.
For the quotation period, Platts has proposed to use a "base month” for its brand assessments. This will ensure that a change in quotation period from one cargo to the next should not distort the assessment value.
Rather, Platts will normalize all indications traded against other quotation periods to the IODEX base month for its brand assessments.
The base month mechanism will roll on the first working day of the month. Market feedback indicated preference for a simple mechanism that aligned with market practice.
Here is an example of how the rolling mechanism will work: on September 3, the five floating price brand assessments will relate to the October average of the underlying index, best reflected by the October swap value. On October 1, the assessments will relate to the November average of the underlying index, and so on.
Platts welcomes feedback on all aspects of the above, and please send feedback to the email addresses at the foot of the screen.
Thank you for your attention during this Platts methodology video.