Date post: | 25-May-2015 |
Category: |
News & Politics |
Upload: | informa-australia |
View: | 584 times |
Download: | 6 times |
© 2013 Platts, McGraw Hill Financial. All rights reserved.
Floating prices in the seaborne market
Francis Browne, Editorial Director, Price Group
Global Iron ore & Steel forecast, Perth, 11 March, 2014
Agenda
• Pricing mechanisms
• Trade volume
• Size matters; pellets, lump and premiums
• Methodology update
2
Introducing Platts
• Founded in 1909, Platts is the world’s largest energy and metals information provider
• Every day, more than US$10 billion in trading activity and term contract sales are based on Platts
• Platts brings transparency to the market
3
Price Reporting $
Breaking News !
Assessments
Market Reports
Platts Global Positioning
• More than 1000 professionals across 20 offices
• Over 10,000 customers in over 150 countries
4
Singapore
Beijing
Shanghai
Hong Kong
Tokyo
Melbourne
London
Moscow
Dubai
Sao Paulo
Buenos Aires
New York
Washington
Houston
Pittsburgh
Boston
Denver
Evergreen
Hightstown
Westminster
Platts Focus: The Spot Market
• Spot prices are established at the margin
• Term contracts are priced on spot market assessments
• Derivatives settle off spot prices
5
Platts assessments
Pricing mechanisms
Iron ore trade continues to evolve
IODEX 62% CFR China is Now a Global Benchmark
7
There is no universal price mechanism
• All mechanisms now use a published base price
• Many LTC’s are now priced monthly with a provisional value before shipment
• Growing portion have migrated to floating prices
• Shorter term pricing has led to better contract performance
8
Floating contract pricing
9
• Most floating prices are basis an index value +/- a delta
• Typically they price a quotation period (QP) against the average of an index over a specified period.
• Usually that period is a month, it could also be loading dates either side of a B/L date or NOR dates
What do Price Differentials Express?
• Why does the market apply premiums or discounts to published benchmark prices?
– Quality differences (Chemical, Physical, Metallurgical)
– Locational differences
– Terms and conditions differences
– Most importantly; timing differences
10
Typical examples or floating price quotes
• Month average plus/minus delta in $/mt – Month QP +2
– Month QP -2% +3
• Notice of readiness (NOR) or B/L date – NOR +/-5(days) -2
– B/L +/5 +VIU +3
• Periods around shipping dates are often the average of index, 2 days prior - B/L date - 2 days post. So called 2-1-2
11
• Spot deals on index-linked basis have increased also as participants seek to mitigate price volatility
• Differentials to the published value used as expressions of differences in quality/VIU and timing
• Trend mirrors evolution in other cargo markets like oil, in which a large portion of spot transactions are index-linked
• Market participants buy or sell physical on a floating basis, and hedge their exposure in derivatives on a fixed-price basis
12
Emergence of Floating Price Activity in Spot Market
Floating Price Activity in Spot Trading – Examples
13
Differential expression
Actual examples
Product Pricing basis Quotation period
Flat price 61%-Fe Pilbara Blend Fines 62%-Fe IODEX +$1/dmt
Month of BL
63%-Fe Standard Sinter Feed Guaiba (SSFG)
Platts IODEX + 1%-Fe differential +$0/dmt
5 days before and after NOR (discharge port), excl. NOR date
61.8%-Fe Brazilian fines with 7.4% SiO2
IODEX +flat-price discount per 1% silica exceeding 4.5% (bidder seeking smallest discount quantum wins cargo)
10 days before and after BL
63%-Fe Newman Lump IODEX +$0.16/dmtu Month of delivery
58%-Fe Indian fines Platts 58%-Fe +$0/dmt minus Freight
5 days on and after offer date
Percentage 57%-Fe Super Special Fines dmtu value of 62%-Fe IODEX -3% 5 days on and before NOR (discharge port)
Trade volume
Spot market activity
Observed trades Jan 13 – Jan14
15
2012 delivery
16
2013 delivery
17
Spot market transactions
• In 2013, Platts observed 475 trades
• 8% of the total seaborne volume China imported that year.
• In line with our view that most spot markets are around 5-10% of delivered volume
• LTC performance is good when there is less price incentive to buy spot.
18
Long term average = $130
19
2013 Cal14 trade vs spot
20
2013 - Cal14 traded average $116.22
21
Volume of swaps cleared at SGX
22
DCE traded 470 million tons in 6 months
• Open interest in currently 419,000 lots equivalent to 20 million tons
• Pricing tracks offshore movements
• Most active month has moved to September
• Strong correlation with the SHFE rebar contract
23
Lump and pellet premiums
Size matters
Lump assessments published in SMD
25
Pellet assessments
26
Pellet assessment formula
• Previous months average netback
• Pervious months average Fe differential (x3)
• Market assessed premium (market assessed)
• Factored to 65% to give a dmtu value
27
Methodology update
Bringing more information and transparency
Launched a low Alumina 58%Fe assessment
29
Methodology guide
30
Dry bulk freight
31
• Thermal Coal freight prices • News on Freight, Rail and Ports • Current Vessel Fixtures
• Sugar freight prices
• Raw Material freight prices • News on Freight
• Steel freight prices • Freight derivatives prices
Thermal Coal
Sugar, Polymers
Iron Ore, Metallurgical Coal and Alumina
Steel
Dry Bulk Shipping Products
Newsletter
Real Time
Market Data
Analytics
Trading Services
• Polymer freight prices
• Freight prices • Freight Fundamentals (fixtures, etc.) • Freight derivative prices • News on Freight
Thank you
Always available to answer your questions