Annual
iron ore pricing has been challenged during the ongoing 2010 benchmark
price talks. Three mining giants all show their intention to shift the
yearly pricing by a quarterly one or index-based one.
Mr.
Cameron Hunt, Iron Ore Index Director of Londong-based information service
institute Metal Bulletin, delivered a speech on global iron ore market
and gave an explanation on iron ore price index on 6th
Steel Development Strategy & Supply-Demand Forum organized by Shanghai
SteelHome on Saturday. Here are his points:
China
Heats Global
Iron
Ore
Demand; World
Iron
Ore
Consumption Close to 1.6 Bln Tonnes
Iron
ore is the biggest commodity worldwide and enjoys a 40 percent of global
seaborne trades, said Mr. Hunt. At present, global iron ore consumption
has approached 1.6 billon tonnes (converted into 62 percent grade fines),
up 30 percent over 2005. He predicted that global iron ore trades will
reach 1.05 billion tonnes and 1.16 million tonnes in the year of 2010 and
2011 respectively. He assumed that contracted price will hit 180 US cents
per dry metric ton unit (equivalent to US$ 112 per tonne, FOB, 62% fines)
in 2011. After hitting the peak, the contracted price will fall year after
year, even drop to 116 US cents per dry metric ton unit (US$ 72 per tonne,
FOB, 62% fines) in 2014, which is still higher than 2009 deal.
China
is the key
contributor of world iron ore consumption. In 2009,
China
's iron ore spot trades took up 30 percent of global volume.
China
's crude steel production was 575 million tonnes in 2009, versus 66
million tonne in 1990. Large steelmakers' production expansion was the key
factor which helped
China
's crude steel production increase. Amid 75 million tonnes of total crude
steel output increment in 2009, large steel mills contributed 72.5 million
tonnes.
On
the basis of scrap steel supply tension in China (even the whole world),
the country's iron ore imports explode in recent years, for instance 628
million tonnes in 2009 compared to
2008'
s 445 million tonnes.
Cameron
Hunt believed that iron ore supply will be lower than demand in the future
years. Iron ore price has the rising room, estimated to hit US$ 200 per
tonne (CIF,
China
), equal to the level in May and June of 2008.
Mr.Cameron
Hunt, Iron Ore Price Index Director of Metal Bulletin
Traditional
Annual Pricing Leaning to Spot-linked Mode
As Cameron Hunt introduced, traditional annual pricing
could not reflect the market and is doomed to be replaced gradually.
Recently, three miners have announced to choose a shorter term pricing
mode, and traditional annual pricing has been shifting to quarterly or
index-linked one.
Shorter term pricing badly needs one sound spot
pricing system, and Metal Bulletin Iron Ore Index (MBIOI) comes to being
naturally. The MBIOI is a tonnage weighted calculation of transactions
normalised on iron content and freight to 62% iron content, CFR Qingdao,
China. Normalisation curves are developed in house and based on
value-in-use data for different material chemistries, which are updated
every three months. The Index includes mechanisms to create a balance of
input across all market participants, and to exclude outlier data.
Cameron Hunt introduced that the iron ore prices
collected by SteelHome, an independent website, are employed to work out
MBIOI.
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