Minews - China’s CISA to revise iron ore price index methodology

(Minews) - The China Iron & Steel Association, the organization representing Chinese steel mills, has started revising its iron ore price index methodology, an association official said Monday.

“At the request of our member mills, we will be placing greater emphasis on actual transaction prices instead of an index, and may be adding more varieties of iron ore to our basket for calculating the iron ore price index instead of only fines,” the official said, adding that the association is also open to publishing seaborne iron prices for some individual Chinese ports should Chinese mills need it to do so.

CISA started publishing its iron ore index on a weekly basis on October 11 2011 and increased the frequency to daily from January 2, 2014.

Besides selecting 1994 iron ore prices as the basis, CISA also included components of imported iron ore prices in dollars for seaborne cargoes and in yuan for port inventories, both including 62% and 58% Fe, into its index calculation.

Prices of domestically produced iron ore both for 62% and 65% grade concentrates are also included in the index’s calculation.

“CISA has been approached by Chinese mills to revise its existing iron ore pricing index methodology as these mills need to get hold of exact transaction prices, for example, a 62% grade fines CFR China price in dollars, for them to refer to when signing deals with overseas iron ore miners instead of an index,” a Beijing-based iron ore source close to CISA explained.

In the latest iron ore pricing methodology draft CISA issued on December 31, 2014, it said that in the future index calculation, the organization would include transaction prices of tenders concluded on the e-trading platforms such as COREX or originally the China Beijing International Mining Exchange, Singapore-based GlobalOre, and iron ore futures on the Dalian Commodity Exchange, which had not been mentioned in CISA’s original methodology details released in 2011.

Moreover, Chinese mills have talked to CISA about individual seaborne iron ore CFR China price in dollars at frequently used Chinese ports to reflect freight differences in delivery points from North to South China, he added.

Imported iron ore price indexes have become increasingly important to Chinese mills because of their greater reliance on imported iron ore, with imported iron ore now accounting for 70% of China’s annual iron ore consumption for steel output from about 60% a decade ago, market sources said.

This development has triggered Chinese market’s desire to have its own price index, they added.

With the fall in seaborne iron ore prices in 2014, imported material may increase its share of the Chinese market in 2015 because some Chinese miners and processors, with higher production costs, have been squeezed out of the business since late 2014, further raising the importance of pricing indexes.