The evolution in the iron ore market in the past years called for both the iron ore suppliers and consumers to explore new iron ore pricing mechanisms such as the adoption of a mixture of the iron ore pricing indices to best reflect the market situation, Liu Zhenjiang, secretary general of the China Iron and Steel Association proposed at the 18th China International Steel & Raw Materials Conference 2018 on September 20.
“Many pricing reporting agencies and websites in China and outside have launched many iron ore pricing indices with different methodologies, and surely a basket of various indices will be fairer than a single index (to represent the iron ore market),” Liu elaborated at the event in Dalian, Northeast China’s Liaoning province.
It has already been a common understanding among all the major iron ore mining companies that a mixture of indices for iron ore pricing should be a fair play for the market, Mysteel noted when talking to the conference delegates.
For the time being, major iron ore pricing index providers include Mysteel, Platts, Argus, and Metal Bulletin with methodologies varying from one another.
An official with an overseas mining company agreed on Liu’s comment, telling Mysteel on the sideline of the conference that China's iron ore market has been evolving and it is time for the pricing scheme to change accordingly.
“The market is more conscious of differentials in grades, impurities and brands, and sole reliance on a single index to price the commodity whether for long-term supplies or spot sales will be too risky both for the miners and steel mills, as it may not be able to reflect the fair market value of iron ore,” he commented.
Mysteel understands major miners have been or are seriously considering how to adopt multiple pricing indices into their iron ore business since the beginning of this year.
“It is time to discuss how to mix the indices the best to represent the interests of the related parties in the market, and some market participants have already started the serious and systematic study internally on each of the indices to work out the best solution both for long-term and spot sales,” Liu marked.
China has been heavily relying on imported iron ore for steelmaking, as for 2017, its iron ore import volume totaled 1.07 billion tonnes, or accounting for around 80% of China’s consumption only based on the country’s 832 million tonnes of steel output.
Written by Victoria Zou, zyongjia@mysteel.com, and Hongmei Li, li.hongmei@mysteel.com