Price Assessment

The iron ore lump premium price

  • What is Platts Iron Ore Lump Premium
  • How Platts assesses the iron ore lump premium
  • Evolution of Platts iron ore lump premium assessment

What is Platts Iron Ore Lump Premium

The Platts spot iron ore lump premium assessment (IOCLP00) is of the premium a lump cargo commands over the price of fines as defined by the Platts 62% Fe Iron Ore Index, or IODEX. This premium is assessed on a US dollar per dry metric ton unit CFR Qingdao basis, which is applied over the IODEX assessments.

In August 2017 Platts increased the frequency of the lump premium assessment to daily from weekly to reflect the heightened liquidity in spot trade of lump products.

The lump premium assessment specifications reflect the type of lump material that possesses the most liquidity and is most commonly traded in the spot market, like Pilbara Blend and Newman Blend lump. The reason lump material is typically able to command a premium over fines cargoes is because lump can be directly applied to blast furnaces with the exception of certain non-screened brands, while fines material has to undergo the process of sintering before being used.

Since the start of the spot lump premium assessments in May 2013, there has been a discernible increase in transparency among industry participants and more openness in sharing transactional data.

Besides spot transactions, the assessment has also been used by miners, steelmakers and traders globally to price longer-term contracts.

The lump premium is also the basis of derivatives like swaps, which are generally settled against the monthly average of Platts spot assessment.

How Platts assesses the iron ore lump premium

The Platts lump premium assessments reflect the tradable price of iron ore lump brands that are most widely traded in the market.

Most commonly, Platts observes spot lump transactions being concluded as a floating price premium over the monthly average of IODEX assessments, which is how the assessment is directly presented on a US dollar per dry metric ton unit CFR Qingdao basis.

However, flat price trades, bids and offers are also observed from time to time, and are converted to a premium on a dmtu basis.

The lump premium assessments reflect spot market value as of the assessment timestamp of 5.30pm Singapore/Beijing time (9.30 am GMT).

Platts editors publish confirmed trades, bids, offers and expressions of interest to trade spot lump cargoes during the Platts Market on Close assessment process, thereby always giving the market the opportunity to participate in the assessment process, help to prove market value and to provide feedback.

The information is summarized in a daily assessment rationale, highlighting specific bids, offers, trades or exclusions that have been taken into account. All this information is summarized in our newsletters and is published on our real-time information service, Platts Metals Alert.

Evolution of Platts iron ore lump premium assessment

With spot lump transactions seeing increased liquidity of late, the use of the Platts lump premium assessments has also grown. Most significantly, on August 31, 2015, the Singapore Exchange – which clears the majority of global iron ore swaps, futures and options – launched lump premium swaps and futures contracts settled using the Platts spot lump premium assessments. This established the Platts lump premium assessment as an industry benchmark and was a move welcomed by most market participants, who said there was growing demand for a hedging tool for both sellers and buyers as the spot lump market matures.

Longer-term lump contracts between miners and their customers had been negotiated on a quarterly basis until May 2014, when the spot lump market plunged to historically low levels and Chinese end-users did not feel that premiums negotiated at the start of each quarter were sufficient to reflect current tradable levels that they could accept for their term contracts. There was a widespread push by Chinese steelmakers for lump producers to make the switch from a quarterly set premium to monthly averages set from the Platts spot lump assessments. Since then, this has made the weekly spot lump assessments even more widely referenced and used in contracts.

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