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Platts proposes to amend Asia lump iron ore methodology, publish outright prices

  • Platts proposes to assess the lump premium over the corresponding forward strip of 62% fines
  • Platts proposes to use lump physical market structure, prioritized over derivative structure
  • Platts proposes to reflect lump-basis floating information
  • Platts proposes to publish outright prices for iron ore lump

S&P Global Platts is seeking feedback on a proposal to change the way it calculates, normalizes and publishes prices for the lump iron ore market in Asia, effective December 1, 2019, as well as to launch a new outright CFR Qingdao lump price assessment, effective January 2, 2020.

The proposals come in response to Platts market-wide consultation on iron ore lump assessment methodology, which was initiated on July 31, 2019.

IODEX STRIP: Effective December 1, 2019, Platts proposes to assess the spot lump premium (LP) over a corresponding IODEX strip.

The IODEX strip would be a calculated value covering the 42 days that correspond to the forward delivery dates reflected in Platts iron ore assessments (14-56 day delivery window). It would represent the value the market assigns to future, yet-to-be published Platts IODEX assessments expressed through trading monthly derivatives. (See graph below)

Platts would use derivatives to obtain the proxy value of outright lump prices to reflect physical lump trades. The value that Platts will publish in its assessments on these days in the future cannot be known on the day of trade and the assessment. However, a hedgeable, proxy value for the relevant Platts assessments of the future can be extrapolated from the derivatives markets, so long as the derivatives and the floating price physical contract use the same Platts reference price for final settlement.

Currently Platts publishes the iron ore LP as a differential to the 62% fines derivative month that lies at the middle of the Platts delivery window, or 35 days forward from the date of publication, also known as the Mid-Window Month. For all LP indications over a base month other than the Mid-Window Month, Platts normalizes these to the Mid-Window Month using the iron ore fines market structure

Under the proposal, this premium would be assessed as a differential to forward IODEX values corresponding to the 42-day delivery period, represented by the IODEX strip and calculated from monthly 62% fines derivatives. For all LP indications over a base month, these would be normalized to an IODEX strip basis by using daily timing adjustment.

Example:

Assessment date: September 9

Assessment window: September 23-November 4 (14-56 days forward)

Current methodology: LP over October 1-31 62% fines derivative

Proposed change: LP over September 23-November 4 IODEX, calculated as a differential to the IODEX strip, derived from 62% fines market structure

PHYSICAL MARKET STRUCTURE: Additionally, Platts proposes to account for physical market structure in its assessment of the physical LP. For example, a competitive LP bid for a delivery October 20-29 would be reflected for those delivery dates, and a competitive LP offer for delivery October 1-10 would be reflected for those delivery dates, with dates in between and outside this date range assessed according to that demonstrated structure.

In the absence of physical market structure information, Platts may consider lump derivative market structure information to evaluate the rest of the physical forward curve. For example, with only an LP bid for delivery October 20-29, Platts may consider the October/November lump derivative spread value to assess earlier and later dates.

Platts may also consider the fines market structure to normalize "cross-month" pricing. For example, an LP bid for delivery November 1-9 basis October pricing would be normalized to delivery November 1-9 basis pricing November 1-9, using the fines market structure.

FLOATING BASIS LUMP INFORMATION: Platts also proposes to begin reflecting floating price market information that employs bases to Platts IODEX and Platts LP in its lump assessment, effective December 1, 2019. Platts has observed that an increased number of bids, offers and trades in the lump market are basis Platts LP and Platts IODEX. However, currently, Platts does not reflect this information in its LP assessment. Under this proposal, this market information would be evaluated basis the forward lump and fines derivative curves and, after being tested against fixed price values, may be considered as part of the Platts lump assessment process.

OUTRIGHT LUMP ASSESSMENT: Platts also proposes to publish an outright, or "all-in", spot price for iron ore lump to bring further transparency to the market, effective January 2, 2020.

The outright price would reflect the value of lump on CFR Qingdao basis delivered by vessel 14-56 days forward in minimum 50,000 mt clips. The specifications would be aligned with the existing specifications for the LP assessment and reflect material with 62% iron content, 4% moisture, 3.5% silica, 1.5% alumina, 0.075% phosphorus and 0.02% sulfur.

The outright price would be published in US dollars per dry metric ton ($/dmt) alongside the existing LP which is published in US dollars per dry metric ton unit ($/dmtu). The outright assessment would be the sum of the assessed LP converted into dmt and the IODEX strip.

Please send all comments, feedback and questions to IODEX@spglobal.com and pricegroup@spglobal.com by October 31, 2019.

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.



Lump premium: Platts IODEX strip approach