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Metal Bulletin Iron Ore Index GuideMethodology, Specifications and Usage
January 2014
Includes specification and methodology for three new iron ore prices
Metal Bulletin Iron Ore Index (MBIOI) GuideMethodology, Specifications and UsageThis guide is intended to introduce users to the market-leading Iron Ore Indices provided by Metal Bulletin.
The Metal Bulletin Group, which today incorporates Metal Bulletin and Steel First have been reporting iron ore transactions since 1915 and were instrumental in the development of the annual benchmark system. Metal Bulletin has been tracking the Chinese iron ore spot market since its creation in 2004. As the market developed and liquidity increased, Metal Bulletin responded to market demands for a more robust pricing methodology, and led the develoment of index pricing.
Metal Bulletin provides ten individual iron ore indices, each representing different parts of the iron ore market.
Contents
MB Index Subscription Package 4Introduction to Metal Bulletin Iron Ore Index Methodologies 6Iron Ore Methodology Flow Diagram 8MBIOI Usage Guide 9MB Fines Indices- 62%, 58% and 58% Premium, CFR Qingdao 10MB Daily Premiums - Lump and 65% Fe Brazilian Fines 11The Metal Bulletin Iron Ore Indices Chart 12MB Pellet and Concentrate Indices CFR Qingdao 14MB China Port Stocks Index 15Chemistry adjustments - Value-In-Use Indices 16MBIOI Five-year report - Mining Five Years of Iron Ore Data 17MBIOI Calendar and Price Consulting 18Index calculation during periods of low liquidity 19Frequenty Asked Questions 20
Metal Bulletin | 3
What’s new?
This updated edition of Metal Bulletin’s Iron Ore Index Guide contains information on three new iron ore indices representing different parts of the iron ore market. These include a new premium for 65% Fe Brazilian material, a Chinese port price index and an adjustment factor for Silica content.
From 1st January 2014 the Metal Bulletin Iron Ore Indices will be published at 7pm Singapore time and in line with Singapore national holidays.
This document dated January 2014 supersedes all previous Metal Bulletin iron ore index methodology documents. The most up-to-date methodology will always be available to download at: www.mbioi.com
Ten iron ore prices and four coking coal prices1. 62% Fe Fines•58% Fe Fines•58% Fe High Specification Premium•65% Fe Brazilian Premium • (Launched January 2014)63% Australian Lump Premium•65% Fe Blast Furnace Pellet•66% Fe Concentrate•62% China Port Stock Index • (Launched January 2014)Value-in-Use Index for Iron content and Silica • (Launched January 2014)Premium Hard Coking Coal FOB/CFR•Hard Coking Coal FOB/CFR •
Index History2. A full history for each of the Iron Ore Indices, starting May 2008 for 62% Fe fines •
Freight Rates3. Coverage of the major freight routes with prices supplied by leading freight brokers •
Historical Freight Rates4. A full history of reported freight rates for major iron ore routes •
Iron Ore News5. Up-to-date iron ore reporting across markets, people, finance and freight •
Index Commentary6. Daily commentary on market dynamics, price direction, analysis of trends and recent data along with •
short-term forecasts
Index Alert and Daily Newsletter7. All the numbers emailed to subscribers at 7pm Singapore time•Daily newsletter includes index commentary, price charts and latest market developments •
Access to Iron Ore Index Analysts8. We welcome interaction with our clients and are on hand to answer any specific questions on the indices and •
the market
Access to price consulting9. The ability to price ‘off-index’ iron ore•Insight into pricing strategies and industry developments •
Regular iron ore spot market data and in-depth insights into the market10.
What do subscribers receive with their Metal Bulletin Iron Ore
Indices package?
Metal Bulletin | 4
Metal Bulletin | 5
www.mbironoreindex.com
Daily alert direct to your inbox- latest iron ore news - spot market data - historical data
Subscribers to the Metal Bulletin Iron Ore Indices recieve a daily alert with all the latest index calculations direct to their inbox. Access to all our prices is available online, including all historical data with latest prices available through the daily newsletter. The website also provides the latest iron ore news and market developments.
Introduction to Metal Bulletin Iron Ore Index Methodologies
The Metal Bulletin Iron Ore Indices (MBIOI) are reference prices for the iron ore spot market.
The Indices are tonnage-weighted calculations of actual transactions that have been normalised to a base specification and delivery point, using the value-in-use for different materials applied by the market.
DATA COLLECTION
The basis of all our indices is the data provided by the market. In order to provide the most representative pricing for the market, it is essential we are able to collect as many representative data points as possible.
Metal Bulletin (MB) utilises a number of methods to collect data. These include phone calls, email, website input and messenger services across our offices in Singapore, London, Sao Paolo and Shanghai.
All data is stored on secure servers and can be accessed if required for auditing purposes.
Actual TransactionsAll the Metal Bulletin Iron Ore Indices are based on actual transactions, which are collected by us from any market participant who is conducting trades on a China spot basis.
Metal Bulletin will also collect assessments, offers and bids from the market to supplement transactin data when appropriate. This non-transaction price data will be weighted at the minumum tonnagefor the index.
Metal Bulletin aims to collect full details of each transaction including brand, commercial terms and any other details relevant to value and pricing.
Chinese PartnerMetal Bulletin has partnered with Shanghai Steelhome, a leading independent market intelligence, data and consultancy company covering the Chinese steel industry. Steelhome supplies daily transaction price data from its widespread contact base of steel producers and iron ore traders within China. This price data is integrated into the Metal Bulletin Index model, making it the only index provider with such access to Chinese data.
Trading PlatformsThe development of various trading platforms has led to a number of changes in the iron ore spot market. Metal Bulletin will include price data from both GlobalOre and CBMX in index calculations.
MARKET BALANCE
The Metal Bulletin Indices* use a unique mechanism to structurally balance the influence of all sides of the market. This reduces the potential risk of market distortions and bias in the data.
Three Sub-IndicesThe published index figure is the straight average of three sub-indices, each of which contain data from a single part of the market; producers, consumers and traders.
Each sub-index is a tonnage-weighted calculation of price data normalised for chemistry and freight. Only the final indices are published. The use of three sub-indices means that each part of the market has exactly the same influence on the final price as any other removing the possibility of bias.
Transaction data recieved via GlobalOre will be entered into each sub-index. This reflects the balanced nature of ownership of the platform.
Metal Bulletin | 6
*Exception being China Port Stock Index - see page 15
NORMALISATION
Value-in-UseThe data is normalised using an in-house developed model based on the value-in-use applied by the market to different material grades, to a single specification.
The normalisation coefficients have been developed using MB and Steel First’s extensive historical data and history of reporting prices in this market. Iron ore indices that are published daily have their normalisation coefficients updated every month to reflect the constantly changing value-in-use relationship of different products and grades. Iron ore indices that are published weekly have their normalisation coefficients updated every quarter.
Material that differs from the base specification but falls within the target range is normalised to the base specification and port. The base specification has been chosen in consultation with the market to reflect the reality of the physical spot market.
Payment termsPayment terms are based on typical commercial practice in the iron ore spot market. Transactions that are conducted on different payment or credit terms will be normalized back to the base specifications, taking into account discounts, current interest rates and standard commercial terms.
Material in different forms is excluded as appropriate from the index in question. Domestic Chinese material, and material imported by routes other than by sea, for example by train or truck, is also excluded. Material that has been delivered and is held on stockpile at the dock is also excluded except in the China Port Stock Index.
MARKET REPRESENTATION
The Metal Bulletin Indices have been specifically constructed to automatically exclude outliers and provide a fair market representation through the three sub-indices.
OutliersAll data points that fall greater than 4% away from the initial calculated index are excluded, and the index recalculated. Outliers will be investigated, and attempts to unfairly influence the index will result in the data provider being warned or excluded.
MB reserves the right to see contracts and signed paperwork before inclusion of the data in the calculation. If this is refused then the data, or the data supplier, can be excluded from the data collection process. MB reserves the right to exclude data that is not fairly presented or is an effort to distort the market.
If the material delivered is different to that expected at the original transaction no changes will be made to the indices. The spot price paid was for the expected material. Any changes made in retrospect are between buyer and seller.
PUBLICATION
From 1st January 2014 the indices will be published daily at 7pm Singapore local time. They will not be published on Singapore national hoilidays.
Singapore national holidays 2014* are as follows:1st January 2014 31st January 201418th April 20141st May 201413th May 2014
*source: www.mom.gov.sg
Where non-publishing holidays occur on a Friday, the weekly indices will be published on the preceding working day and will reflect price data from that week’s working days
MB has no financial interest in the level or direction of the index.
Metal Bulletin | 7
28th July 2014 6th October 201423rd October 201425th December 2014
Phone Email Website Chinese Data
Data collected from wide range of participants; with option of NDA.
Data Collection Model Metal Bulletin
Metal Bulletin’s Calculated Coefficients
‘One-way’ Information flow between Index department and editorial.
Materials from different origins exhibit different value-in-use to the Chinese market. As a result, different origins and brands have unique normalization curves and coefficients
India
Brazil
Australia
Other...
Normalisation procedurePrices normalized based on Fe content and Freight rates
Each data point is put into the relevant sub-index before being normalised.
A preliminary Index figure is calculated from the three sub-indices. Each sub index is volume weighted.
Three sub-indices; each tonnage weighted to balance market.
The final index is the non-weighted average of the three sub-indices.
TradersProducers Consumers
Preliminary MBIO Index Figure
TradersProducers Consumers
MBIO Index
The data from the day’s model is collected and stored to create the next month’s correlation coefficients.
Outliers lying more than 4% away from the mean price are excluded and the index calculated
once more.
Normalisation coefficients based on value-in-use curves are developed In
house. The coefficients are created using the previous
month’s price data.
Freight ratesAustralia
Capesize Route
India Capesize Route
Brazil Capesize Route
Bloomberg MBIO62DA
MBIOI Websitewww.mbioi.com
Daily EmailAlert
Metal Bulletin Iron Ore Index:Capturing the relationship between different materials
Metal Bulletin | 8
MBIOI Usage GuidePhysical MarketThe primary role of the Metal Bulletin Iron Ore Indices is to provide market participants with a fair and robust representation of the physical iron ore spot market.
Our methodology and index specifications are designed todo just this. The MB methodology provides users with a robust and representative price for iron ore. As a result, theindex can be used by market participants to fulfil a number of functions.
The global benchmark pricing system in iron ore ended in 2009 and since then the vast majority of transactions linked to spot prices. This development has brought with ita number of new challenges, most noticeably, the issue ofprice discovery. By using the Metal Bulletin Iron Ore Indicesas a basis for physical transactions, market participants can be confident in a market-leading methodology.
Market negotiations rely on a robust iron ore price to act as a benchmark that both counterparties are confident that they can trust, and one that is accepted throughout the market.
A growing number of contracts are based on Metal Bulletin Iron Ore Indices as market participant see the value and reliability of our methodology.
The vast majority of material traded globally is not the same as the index basis. As a result, an adjustment factor is often agreed between buyer and seller in order to compensate for any material difference in the iron ore being traded. In this situation MB can assist the industry by providing specific adjustment factors based on our value-in-use normalisation curves along with the usage of our chemistry adjustment factors.
As the iron ore market develops we are seeing growing volumes of material enter the spot market that differ significantly from the 62% Fe Fines benchmark.
As a result of this Metal Bulletin has developed a range of different indices and premiums to provide market participants with industry-leading coverage of the iron ore spot market.
These new benchmarks mean that market participantscontinue to have the best possible insight into the ironore market and the relative value of different iron ores.
Financial Market
The Metal Bulletin Iron Ore Indices have been produced to meet the requirements of the financial market as well as the physical market.
There are a number of key requirements that the Metal Bulletin Iron Ore Indices satisfy for use in the financial market. They include that the calculation of the index is a repeatable, mechanistic process with removal of human judgment, and one that is fully auditable.
The volatility that now exists in iron ore spot prices has led to the development of a financial market in iron ore that continues to see rapid growth in both liquidity and breadth of use, allowing hedging and risk management. The Metal Bulletin Iron Ore Indices can be used to settle OTC swaps.
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MBIOI 62%, 58% and 58% Premium, Fe Fines CFR QingdaoThe MBIOI-62 is a benchmark price representing the iron ore fines market. All prices within the specification maximums below, are normalised to the base specification based on the value-in-use implied by the market. The MBIOI-62 is a daily index published at 7pm Singapore time.
The MBIOI-58 is a price representing a growing part of the iron ore fines market. All prices within the specification maximums below are normalised to the base
MBIOI - 62
Price US$ per dry metric tonne, CFR ChinaMaterial Origin All OriginsFe Content Base 62%, Range 56% to 66%SilicaBase 3.5%, Maximum 8.0%AluminaBase 2.0%, Maximum 4.0%PhosphorusBase 0.05%, Maximum 0.15%SulphurBase 0.02%, Maximum 0.06%Loss on Ignition (%DW)Base 4.7%, Maximum 9.8%Moisture Base 8.0%, Maximum 10.0%GranularityBase Size >90% < 6.3mm, at least 90% <10.0mm, at most 40% <0.15mmTrade SizeMinimum 30,000 tonnesPayment TermsPayment at sight, other terms normalised to baseDelivery PortBase Qingdao, normalized for any Chinese mainland sea portDelivery periodWithin 8 weeksPublicationDaily at 7pm Singapore time
MBIOI - 58
PriceUS$ per dry metric tonne, CFR ChinaMaterial Origin All OriginsFe ContentBase 58%, Range 56% to 60%SilicaBase 5.5%, Maximum 9.0%AluminaBase 3.5%, Maximum 5.0%PhosphorusBase 0.08%, Maximum 0.15%SulphurBase 0.04%, Maximum 0.07%
MoistureBase 8.0%, Maximum 10.0%GranularityBase Size >90% < 6.3mm, at least 90% <10.0mm, at most 40% <0.15mmTrade SizeMinimum 30,000 tonnesPayment TermsPayment at sight, other terms normalised to baseDelivery PortBase Qingdao, normalized for any Chinese mainland sea portDelivery periodWithin 8 weeksPublicationDaily at 7pm Singapore time
MBIOI – 58P (High Specification)
PriceUS$ per dry metric tonne, CFR ChinaMaterial Origin All OriginsFe ContentBase 58%SilicaBase 5.5%AluminaBase 1.5%PhosphorusBase 0.05%SulphurBase 0.01%
MoistureBase 8.0%Granularity>90%<10.0mm
Trade SizeMinimum 30,000 tonnesPayment TermsPayment at sightDelivery PortQingdao
Delivery periodWithin 8 weeksPublicationDaily at 7pm Singapore time
Index Specifications
specification based on the value-in-use implied by the market. The MBIOI-58 is a daily index published at 7pm Singapore time.
In addition to the MBIOI-58, Metal Bulletin publishes a daily differential premium for the 58% Fe high specification; low alumina and phosphorous material (MBIOI-58P). The daily indices are rounded to two decimal places. The premium is rounded to the nearest $0.50.
Metal Bulletin | 10
MBIOI - 62
Price US$ per dry metric tonne, CFR ChinaMaterial Origin All OriginsFe Content Base 62%, Range 56% to 66%SilicaBase 3.5%, Maximum 8.0%AluminaBase 2.0%, Maximum 4.0%PhosphorusBase 0.05%, Maximum 0.15%SulphurBase 0.02%, Maximum 0.06%Loss on Ignition (%DW)Base 4.7%, Maximum 9.8%Moisture Base 8.0%, Maximum 10.0%GranularityBase Size >90% < 6.3mm, at least 90% <10.0mm, at most 40% <0.15mmTrade SizeMinimum 30,000 tonnesPayment TermsPayment at sight, other terms normalised to baseDelivery PortBase Qingdao, normalized for any Chinese mainland sea portDelivery periodWithin 8 weeksPublicationDaily at 7pm Singapore time
MBIOI - 58
PriceUS$ per dry metric tonne, CFR ChinaMaterial Origin All OriginsFe ContentBase 58%, Range 56% to 60%SilicaBase 5.5%, Maximum 9.0%AluminaBase 3.5%, Maximum 5.0%PhosphorusBase 0.08%, Maximum 0.15%SulphurBase 0.04%, Maximum 0.07%
MoistureBase 8.0%, Maximum 10.0%GranularityBase Size >90% < 6.3mm, at least 90% <10.0mm, at most 40% <0.15mmTrade SizeMinimum 30,000 tonnesPayment TermsPayment at sight, other terms normalised to baseDelivery PortBase Qingdao, normalized for any Chinese mainland sea portDelivery periodWithin 8 weeksPublicationDaily at 7pm Singapore time
MBIOI – 58P (High Specification)
PriceUS$ per dry metric tonne, CFR ChinaMaterial Origin All OriginsFe ContentBase 58%SilicaBase 5.5%AluminaBase 1.5%PhosphorusBase 0.05%SulphurBase 0.01%
MoistureBase 8.0%Granularity>90%<10.0mm
Trade SizeMinimum 30,000 tonnesPayment TermsPayment at sightDelivery PortQingdao
Delivery periodWithin 8 weeksPublicationDaily at 7pm Singapore time
MBIOI Lump Premium, CFR QingdaoThe Metal Bulletin Iron Ore Index Lump Premium reflects the premium, in US¢/dry metric tonne units, which Australian origin lump within the specifications defined below, commands on a spot basis over the benchmark 62% Fe Fines Index (MBIOI-62).
The premium is published on a daily basis and is adjusted as and when spot market transactions necessitate it. The premium is rounded to the nearest 0.50¢.
MBIOI - LP
Price US¢/dry metric tonne units (dmtu)Material Origin AustraliaFe Content Base 63%, Range 61% to 65%SilicaBase 3.5%, Maximum 5.0%AluminaBase 1.5%, Maximum 2.0%PhosphorusBase 0.08%, Maximum 0.10%SulphurBase 0.02%, Maximum 0.04%Loss on Ignition (%DW)Base 5.0%Moisture Base 4.0%, Maximum 6.5%GranularityMax 13.5%<6.3mm Max 25%>31.5mm
Trade SizeMinimum 30,000 tonnesPayment TermsLC on sight, other terms normalised to baseDelivery PortCFR Qingdao, normalized for any Chinese mainland sea portDelivery periodWithin 8 weeksPublicationDaily at 7pm Singapore time
Metal Bulletin | 11
MBIOI – 65 - BZ
PriceS$ per dry metric tonne, CFR ChinaMaterial Origin BrazilFe ContentBase 65%, Range 64 to 66%%SilicaBase 2.7%, Maximum 3.7%AluminaBase 1.2%, Maximum 1.6%PhosphorusBase 0.045%, Maximum 0.060%SulphurBase 0.01%, Maximum 0.05%
MoistureBase 9.0%, Maxi mum 10.0%Granularity>90%<10.0mm, <40%<0.15mm
Trade SizeMinimum 30,000 tonnesPayment TermsPayment at sightDelivery PortQingdao
Delivery periodWithin 10 weeksPublicationDaily at 7pm Singapore time
In addition to the benchmark 62% Fe index, Metal Bulletin publishes a premium that high specification ore, as defined by the base specification, commands on a spot basis. The total implied value of this high specification material is defined by the MBIOI-62 plus the specified premium.
The premium is published on a daily basis and is adjusted as and when spot market transactions necessitate it. The premium is rounded to the nearest $0.50.
MBIOI 65% Fe Brazilian Premium, CFR Qingdao
The Metal Bulletin Iron Ore Indices
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62% Fe Fines Launched May 2008
58% Fe Fines Launched August 2011
65% Fe Pellet Launched April 2012
66% Fe Concentrate Launched September 2012
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58% Fe High Specification Premium Launched August 2011
$/% Fe VIU Launched July 2012
Lump Premium (RHS) (c/dmtu) Launched May 2013
65% Fe Brazilian Premium (RHS) Launched January 2014
1. Index launched 23 May 2008, $180.52/tonne
8. Largest weekly fall$25.80/tonne, 21-28th October 2011
4. Most consecutive days of rises14, 10th March 2010–29th March 2010/ 31st
October 2011-17th November 2011
7. Most consecutive days of falls20, 8th September 2011–5th October 2011
6. Record high $191.70/tonne, 17th February 2011
5. Largest daily fall $7.61/tonne, 24th May 2010
4. Most consecutive days of rises14, 10th March 2010–29th March 2010/ 31st
October 2011-17th November 2011
2. Record low$58.67/tonne, 31st October 2008
3. Largest weekly rise $14.27/tonne, 1-8th January 2010
9. Largest daily rise $8.96./tonne, 8th October 2012
10. Average after 5 years$135.98/tonne
$/tonne
$/tone
The Metal Bulletin Iron Ore Indices
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62% Fe Fines Launched May 2008
58% Fe Fines Launched August 2011
65% Fe Pellet Launched April 2012
66% Fe Concentrate Launched September 2012
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58% Fe High Specification Premium Launched August 2011
$/% Fe VIU Launched July 2012
Lump Premium (RHS) (c/dmtu) Launched May 2013
65% Fe Brazilian Premium (RHS) Launched January 2014
1. Index launched 23 May 2008, $180.52/tonne
8. Largest weekly fall$25.80/tonne, 21-28th October 2011
4. Most consecutive days of rises14, 10th March 2010–29th March 2010/ 31st
October 2011-17th November 2011
7. Most consecutive days of falls20, 8th September 2011–5th October 2011
6. Record high $191.70/tonne, 17th February 2011
5. Largest daily fall $7.61/tonne, 24th May 2010
4. Most consecutive days of rises14, 10th March 2010–29th March 2010/ 31st
October 2011-17th November 2011
2. Record low$58.67/tonne, 31st October 2008
3. Largest weekly rise $14.27/tonne, 1-8th January 2010
9. Largest daily rise $8.96./tonne, 8th October 2012
10. Average after 5 years$135.98/tonne
$/tonne
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MBIOI 65% Fe Blast Furnace Pellet, CFR Qingdao – MBIOI-PT
MBIOI 66% Fe Concentrate, CFR Qingdao – MBIOI-CO
The MBIOI-PT is a benchmark price representing the iron ore blast furnace pellet market. All prices within the specification maximums below, are normalised to the base specification based on the value-in-use implied by the market. The index is rounded to two decimal places. The MBIOI-PT is a weekly index published Friday at 7pm Singapore time.
Index Specifications
MBIOI-PT
PriceUS$ per dry metric tonne, CFR ChinaFe ContentBase 65%, Range 60% to 70%OriginsAll OriginsSilicaBase: 4.5%, Maximum: 6.0%AluminaBase: 0.4%, Maximum: 0.8%PhosphorusBase: 0.03%, Maximum: 0.05%SulphurBase 0.01%, Maximum 0.02%MoistureBase 2.0%/DW, Max 3.0%/DWGranularityMaximum Size >90% >10.0mmCompression StrengthBase 250daN, min 200daNTrade SizeMinimum 10,000 tonnesPayment TermsLC on sight- other payment terms normalisedDelivery PortBase Qingdao - normalized for any Chinese mainland sea portDeliverySeaborne Imports- within 8 weeksPublicationFriday at 7pm Singapore time
MBIOI-CO
PriceUS$ per dry metric tonne, CFR ChinaFe ContentBase 66%, Range 63% to 70%OriginsAll OriginsSilicaBase: 4.5%, Maximum: 9.0%AluminaBase: 0.5%, Maximum: 2.0%PhosphorusBase: 0.02%, Maximum: 0.06%SulphurBase 0.03%, Maximum 0.10%TitaniumBase 0.05%, Maximum 0.30%MoistureBase 8.0%/DW, Max 11.0%/DWGranularityMaximum Size >80% <0.15mm. Undersize maximum 20%<0.05mmTrade SizeMinimum 10,000 tonnesPayment TermsLC on sight- other payment terms normalisedDelivery PortBase Qingdao - normalized for any Chinese mainland sea portDeliverySeaborne Imports- within 8 weeksPublicationFriday at 7pm Singapore time
The MBIOI-CO is a new benchmark price representing the iron ore concentrate market. All prices within the specification maximums below, are normalised to the base specification based on the value-in-use implied by the market. The index is rounded to two decimal places. The MBIOI-CO is a weekly index published Friday at 7pm Singapore time.
Metal Bulletin | 14
MBIOI 62% Port Stock Price - MBIOI - CPS
The China Port Stock Index represents the market for imported iron ore sold at main Chinese ports.
The MBIO China Port Stocks Index (MBIOI – CPS) is based on a tonnage-weighted calculation of actual transactions, of imported material conducted at specified Chinese ports. The prices of material included in the specified range are normalised to the base specification based on the value-in-use implied by the market. An additional adjustment is applied to normalise the port of sale to the base location, Qingdao based on the prior months relative prices. The price is
MBIOI-CPS
Price RMB per wet metric tonne, Free-on-truckFe Content Base 62%, Range 56% to 66%OriginsAll OriginsSilicaBase 3.5%, Maximum 8.0%AluminaBase 2.0%, Maximum 4.0%PhosphorusBase 0.05%, Maximum 0.15%SulphurBase 0.02%, Maximum 0.06%
Moisture Base 8.0%, Maximum 10.0%GranularityBase Size >90% < 6.3mm, at least 90% <10.0mm, at most 40% <0.15mmTrade SizeMinimum 500 tonnesPayment TermsPayment at sight, other terms normalised to baseDelivery PortBase Qingdao, normalized for any Chinese mainland sea portDelivery periodWithin two weeksPublicationDaily at 7pm Singapore time
quoted in RMB per wet metric tonne, and includes 17% VAT and port fees. The index is rounded to the nearest RMB.
Due to the nature of participants in the port market, the index is a tonnage weighted average of all transactions. They are not split into sub-indices as is the case in the rest of Metal Bulletin’s indices.
The normalised chemistry specification is identical to the benchmark 62% Fe CFR fines index in order to provide to best possible opportunity for comparison.
Metal Bulletin | 15
MBIOI Value-In-Use Index - MBIOI - VIUAdjusting Prices for Iron and Silica Content
Metal Bulletin’s chemistry adjustments represent the implied value of individual chemistries based on regression analysis of actual transaction data included in the Metal Bulletin 62% Fe Fines Iron Ore Index.
Metal Bulletin represents the implied value of one percentage point of the following chemistries: Iron (Fe) and Silica (Si) which should be used as an adjustment factor for material that differ from the published 62% Fe Index specification.
The relationship between price and chemistry in the iron ore market is a complex one, and is generally acknowledged to be non-linear. However, analysis of the spot market data shows that a linear relationship between price and iron content can be applied within certain ranges while maintaining statistical validity.
Metal Bulletin recognises that the use of a linear adjustment does not give the full relationship, and that a number of other factors need to be taken into account, including other chemistries and physical properties, but the Index is intended as a quick reference price adjustment, all other factors being equal.
This is an important point. These two new indices measure the price impact of one extra percentage point of that chemistry all the other factors being equal (including the iron content). Moreover, these values can only be applied to material within a specific range of chemistries content
The adjustment factors are applied to the MBIOI62 index as a differential adjuster.
Value-in-Use Index Application Formula
Price of Iron Ore at Grade XX% = MBIOI62 + (% Fe difference from 62% Fe * MB Fe VIU Index)
Price of Iron Ore at Si Grade X% = MBIOI62 + (% Si difference from 3.5% * MB Si-VIU Index)
The application range for silica is between 2% and 8%.
The chemistry adjustment factors are published on the first working day of the month and our based on a regression of the previous month’s transaction data.
Metal Bulletin | 16
Chemistry adjustment Value-in-Use Indices
Metal Bulletin | 17
This is the most in-depth report available in the market covering international iron ore prices. The report takes advantage of the large amount of data on iron ore prices that Metal Bulletin Iron Ore Index (MBIOI) has been collecting over the last five years.
The aim of this product is to improve the knowledge and information available on the iron ore market through a deep technical and statistical analysis of the historical data and its relation to other relevant variables as never done before.
Over the last ten years the iron ore market has changed. This evolution has been driven by many factors; arguably the most important being increasing Chinese demand for iron ore, and growing global production and trading.
These new factors underpinned volatility and uncertainty in the global iron ore market. One of the main consequences of this uncertainty was that it made the once dominant long-term iron ore benchmark price contracts obsolete.
Metal Bulletin Iron Ore Index was launched in 2008 to provide a complete package of key information and transparent daily prices for the iron ore spot market.
The new Mining five years of iron ore data report provides a further tool for the market. The report includes analysis of the data by material properties including iron content and a look at grade evolution. There is in-depth analysis showing the relationship between material properties and price, Value-In-Use, and a look at market concentration and volatility analysis.
Why is this Metal Bulletin Iron Ore Index report important?
Mining five years of iron ore data
This study will provide insight into a range of key areas including:
Historical evolution of MBIOI. Statistical analysis of ●trends changes and distributions; including correlations with global stock markets.
Data analysis by origin, chemistry, type of transaction. ●Analysis of the data by material properties including iron content and a look at grade evolution.
Leading indicators. Statistical comparison of a new ●generation of indicators to MBIOI.
Study of the relation between iron ore prices and ●macroeconomic variables.
For more details on this report please contact MB at [email protected]
MBIOI Calendar is a unique tool to stay up to date on relevant iron ore, steel and economic variables that affect the international iron ore market.
The MBIOI Calendar tracks data and announcements relevant to the global iron ore and steel markets. Data from a wide range of sources is available along with previous readings and forceasts to provide user with the
best possible tools to understand what moves the iron ore market. Data releases from a range of established agencies and industry participants is available including the Chinese National Bureau of Statistics, China’s Iron and Steel Association, Port Hedland Port Authority, Japan’s Economic and Social Research Institute and the major miners and steel mills. Historical values of those variables can also be provided.
MBIOI Price ConsultancyBy using the extensive proprietary data series based on the value-in-use of fines in the iron ore spot market, MB is able to determine what the implied value of a specific material is at existing market / index levels.
Almost all material differs in some way from the index specification, and typically those price adjustments would be done on a bilateral basis between the buyer and seller. The MB model works by applying the value-in-use relationships in reverse from the index value.
Value-in-use calculations take into consideration the soft factors that would be missed by valuing iron ore on a bottom-up chemistry basis. Many market participants place different values on material above or below what the physical specification may suggest. These values are captured in the MBIOI pricing models.
Making use of this service
Subscribers to the Metal Bulletin Iron Ore Indices are able to utilise this service on a consultancy basis. By providing material specifications and origins to the Metal Bulletin Iron Ore Index department on a confidential basis, we are able to use our in house value-in-use curve to provide details of what our model suggests the material can command on a spot market basis at any given price level.
Note: MB is unable to say what any material is necessarily worth on a spot basis. This depends on a number of factors unique to every buyer and seller. This price consultancy can only state what our value-in-use curves suggest a material would commanded on a spot basis.
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MBIOI Calendar
Index calculation during periods of low data liquidity
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All the Metal Bulletin Indices are calculated based on price data collected from the market. The indices are transaction based; set up so that actual transactions have the greatest effect on the final calculated price.
It is inevitable that occasions will exist where the indices cannot be calculated solely using transaction data and as such Metal Bulletin will use assessments, offers and bids collected from the market. Data points that do not represent actual transactions will be entered into the indices like transaction data but will be weighted according to the lowest tonnage permissible for the index.
On the occasion that there remains insufficient price data for calculation of an index Metal Bulletin will use the following methods in order to calculate the index:
1. Carry over verified transaction data from other sub-indices on the day.
2. Carry over verified transaction data from the previous day in the appropriate sub-index.
3. Carry over verified transaction data from the previous day from any sub-index .
4. Carry over assessment data from the previous day in the appropriate sub-index.
5. Carry over offer/bid data from the previous day in the appropriate sub-index.
6. Carry over assessment data from the previous day from any sub-index.
7. Carry over offer/bid data from the previous day from any sub-index.
8. If no price data can be collected then the index price will be carried over.
About the Iron Ore IndexMetal Bulletin is a leading independent supplier of market intelligence and pricing to the global metals industries. MB’s Iron Ore Indices are an objective representation of the seaborne merchant market for sinter fines delivered to China. The indices are based on actual transactions, which are reported to MB by any market participant who is conducting trades on a CFR China spot basis. MB is totally impartial, and seeks to report an open and transparent representation of the market. MB has no financial interest in the level or direction of the index.
Is my data secure?Data supplied to MB is stored in a secure system, with strictly controlled and limited access. Data on trades is not accessible to other divisions of MB. Contributors are able to submit data via email to a dedicated email address.
Will other market participants be able to work back to my data?The only number that is published is the final calculated index, which is a composite index number from a population of normalized trade data. It is not possible back calculate data without already knowing the full data of every trade. In addition, the methodology utilizes three sub-indices, one for each group of physical market participants, which are then combined on an equal weighting. This further increases data security.
Who is the index for?The index will be of interest to all market participants, both in the physical and financial markets.
Who can contribute to the index?All physical market participants who are engaged in the CFR China port iron ore spot market are encouraged to participate. Material of all origin will be accepted, and included in the calculation, provided it meets the chemical, physical, and delivery specifications outlined in the methodology.
Why use three sub-indicesThis reduces any potential bias between the different market participant groups. Each part of the market will have exactly the same infulence on the final index price.
How do you balance the market influence?The model uses MB’s established Index methodology. The model has a series of checks to make sure that all sides are equally represented. Three sub-indices are created, based on a tonnage-weighted calculation of actual transaction data supplied by producers/ consumers/ traders, which are then equally weighted. This ensures that all sides are represented without bias.
What about outlier data?The model rejects any data point that is more than 4% away from the calculated index, and recalculates the model to one iteration. This removes unrepresentative material as well as mistakes and attempts to unfairly influence the outcome.
FREQUENTLY ASKED QUESTIONS
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What about small but unrepresentative deals?The model is tonnage weighted, so these types of deals do not have a major influence. If they are more than 4% away, they are rejected completely.
Why should I report data?Supplying data will ensure that the model reflects the market. The model is open to data from all market participants in the iron ore spot market. It is not restricted to a closed group or price setting panel.
Why are some indices daily and some weekly?Our index is a mechanistic model process which removes subjectivity, rather than an assessment process which relies on human judgment. This then requires good liquidity of data to conduct a meaningful statistical analysis. When transaction numbers are limited the indices use data collected from across the week. Once sufficient transaction numbers exist an index can be calculated daily. For further details on calculating the the indices in time of low data liquidity please see page 17.
How do you deal with different chemistries / grades?Different material grades are normalised in the model based on the value-in-use implied by the market over the preceding month for daily indices and the preceeding quarter for weekly indices. This increases liquidity at the base specification, and shows movements in the underlying market.
How did you derive the base grade(s) used in your indices?We have spent significant time in consultation with all sides of the market. Initial draft specifications, which are typically aimed at the most liquid and representative grade, are issued to the market for comment before finalisation.
How many respondents does the Index use?The list of potential respondents includes the whole spectrum of physical market participants. Naturally, only a proportion will be active in the market on any one particular day. This involves contacts via our offices in Shanghai, Sao Paulo, Singapore and London, as well as Steelhome contacts with whom we have a partnership. Steelhome are a Chinese firm that specialise in pricing for the steel industry. Like MB they are independent and provide pricing, news, research and conferences. This partnership allows us to utilise their expertise in the Chinese domestic market through their contacts on top of those provided by our own shanghai office.
How does your index allow for market structure with such a high concentration of sellers?The sub-indices are based on a tonnage-weighted calculation of actual transactions normalised for iron content and freight. The final index is the non-weighted average of the three sub-indices, allowing for equal representation from all sides of the market, and also counters market distortion or cherry picking of data. Only the final index is published.
All data points that fall greater than 4% away from the calculated index are excluded, and the index recalculated once.
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The pure spot market is not as concentrated as the contract market, with a long tail of suppliers. These include India, Iran, South Africa, Brazil, Australia, Venezuela, Indonesia and Thailand. Ultimately, we aim to reflect the market, so the concentration of sellers does not affect the index.
What is your methodology for calculating normalisation coefficients?The data is normalized using our in-house models based on the value-in-use applied by the market to different material grades, to a single iron content and using the latest freight rates to a single port.
The value of any material or brand in the spot market is based on a combination of chemistries, physical parametres and a number of soft factors. We do not impose premiums or discounts ourselves, we allow the market to do that and we reflect the relative value of each material or brand to the base specification going forward. Perceived discounts and premiums belong to the Chinese market and we simply reflect those. We have different curves for different materials and origins as appropriate.
How are freight rates addressed in the normalisation process? Is this done on a CFR basis or underlying FOB basis?The index is produced on a CFR basis. Normalisation occurs with regard to the port of delivery relative to our base port Qingdao. There is up to five days sailing time between ports in China, and as such, this can greatly affect the value in use that the consumer place on a particular transaction. If the port is further north then a figure is subtracted from the official price to normalise it to Qingdao. Ports further south have a figure added on the transaction price. The actual number that is added or subtracted is calculated daily using freight figures received from a leading international shipping broker. We also take into account the different routes taken along with different handling costs that exist at different locations. This gives us a very representative figure that changes automatically with the freight rates.
How do you deal with trades reported using a long-term freight commitment compared to a spot freight rate?No adjustment. Freight is up to supplier or consumer. Any advantage or disadvantage is the issue for the supplier as we are not speculating to or from FOB prices.
How frequently are your normalisation coefficients re-calculated?For our daily indices they are updated monthly. Our weekly indices are recalculated quarterly. For our value-in-use chemistry adjustments recalculation also takes place monthly. The relative values of different grades and types of ore are constantly changing. By updating coefficients at these frequencies we are able to capture these changes whilst the calculation retains statistical significance.
How are actual quality variances reported when trades are advised on the basis of indicative/expected specification?Trade is done on expected delivery specifications. This is what the trade is settled on – if it turns out to be different then that is an issue between the two parties who agreed the contract, and who would typically have agreed penalties etc. The index is not back adjusted.
What is not captured by the normalisation process, brand, synergies, other…?Some brands will have different values given to them. Our index represents an underlying value of the market and as such trades can be settled against our price either at a premium or discount as felt appropriate by the parties concerned.
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Disclaimer
This Disclaimer is in addition to our Terms and Conditions as available on our website and shall not supersede or otherwise affect these Terms and Conditions. Prices and other information contained in this publication have been obtained by us from various sources believed to be reliable. This information has not been independently verified by us. Those prices and price indices that are evaluated or calculated by us represent an approximate evaluation of current levels based upon dealings (if any) that may have been disclosed prior to publication to us. Such prices are collated through regular contact with producers, traders, dealers, brokers and purchasers although not all market segments may be contacted prior to the evaluation, calculation, or publication of any specific price or index. Actual transaction prices will reflect quantities, grades and qualities, credit terms, and many other parameters. The prices are in no sense comparable to the quoted prices of commodities in which a formal futures market exists.
Evaluations or calculations of prices and price indices by us are based upon certain market assumptions and evaluation methodologies, and may not conform to prices or information available from third parties. There may be errors or defects in such assumptions or methodologies that cause resultant evaluations to be inappropriate for use. Your use or reliance on any prices or other information published by us is at your sole risk. Neither we nor any of our providers of information make any representations or warranties, express or implied as to the accuracy, completeness or reliability of any advice, opinion, statement or other information forming any part of the published information or its fitness or suitability for a particular purpose or use. Neither we, nor any of our officers, employees or representatives shall be liable to any person for any losses or damages incurred, suffered or arising as a result of use or reliance on the prices or other information contained in this publication, howsoever arising, including but not limited to any direct, indirect, consequential, punitive, incidental, special or similar damage, losses or expenses.
We are not an investment adviser, a financial adviser or a securities broker. The information published has been prepared solely for informational and educational purposes and is not intended for trading purposes or to address your particular requirements. The information provided is not an offer to buy or sell or a solicitation of an offer to buy or sell any security, commodity, financial product, instrument or other investment or to participate in any particular trading strategy. Such information is intended to be available for your general information and is not intended to be relied upon by users in making (or refraining from making) any specific investment or other decisions. Your investment actions should be solely based upon your own decisions and research and appropriate independent advice should be obtained from a suitably qualified independent adviser before any such decision is made.
COPYRIGHT NOTICE: © Metal Bulletin Limited, 2014. All rights reserved. No part of this publication (text, data or graphic) may be reproduced, stored in a data retrieval system, or transmitted, in any form whatsoever or by any means (electronic, mechanical, photocopying, recording or otherwise) without obtaining Metal Bulletin Ltd’s prior written consent. Unauthorised and/or unlicensed copying of any part of this publication is in violation of copyright law. Violators may be subject to legal proceedings and liable for substantial monetary damages for each infringement as well as costs and legal fees.
Singapore
Christopher Ellis [email protected] | +65 65970924
London
Inaki Villanueva [email protected] | +44 (0)20 7827 6468
Peter [email protected] | +44 (0)20 7827 6448
Shanghai
Karen Shi [email protected] | +86 21 5877 0857-35
Ginger Ding [email protected] | +86 21 5877 0857
Hong Kong
Sam [email protected] | +852 2842 6995
Charles [email protected] | + 852 28426994
Australia
Ben [email protected] | +61 3 5221 0715
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For more information about the Metal Bulletin Iron Ore Indices and how they can help you, please do not hesitate to contact the Index team:
