Seaborne iron ore markets should boost fixed price deal volumes so that spot indexes are less linked to paper trade, according to China's main steel association.
Spot trade volumes should increase on the major trading platforms, especially fixed price deals, so that price reporting agencies use fewer floating deals in assessments, China iron ore and steel association Cisa deputy director Wu Jingjing said in an SGX webinar this week. Less transparency and limited transaction data make it harder for indexes to reflect the real market, he said.
The billions of tonnes traded in iron ore paper markets and their increased links to physical deals has allowed physical indexes to use floating deals since 2017, by working the deals back to a fixed price value using the futures forward curve.
The Argus ICX 62pc fines cfr Qingdao index uses both deal types under a methodology that gives more weight to fixed price deals over floating deals, as well as more weight to bids and offers on platforms than to those in off-screen markets that are less transparent.
The past year has seen a sharp reduction both in the overall number of spot transactions and the share of fixed price deals.
ICX-eligible, fixed price deals fell by 75pc to 73 last year, while floating deals rose by 24pc to 211. This flipped the fixed price share to 26pc in 2019 from 63pc of all deals in 2018. Total reported deals fell by 38pc to 284, out of 3,347 data points Argus collected for the ICX last year.
Fixed price trades have rebounded some this year, accounting for 36pc of all January-April ICX-eligible deals. Half of all April deals were fixed price, according to the Argus April breakdown of the ICX and PCX indexes.
The amount of activity on trading screens is also rising this year. Half of all 62pc mainstream deals in 2019 traded on the Globalore and Corex trading platforms. The share of all ICX-eligible trades on platforms has risen to 83pc over January-April this year.
Cisa has also urged the industry to use more iron ore indexes to support price formation, while the largest mining firms have backed basket and brand indexes to improve pricing mechanisms.
The Argus ICX has risen by 5pc to $95.70/dry metric tonne (dmt) cfr Qingdao since the start of the year, supported by supply disruptions in Brazil and aggressive financial stimulus in China to offset Covid-19 economic slowdowns. Brazilian mining firm Vale's high-grade IOCJ fines have been affected by heavy rainfall. IOCJ trade underpins the Argus 65pc fines index, which has risen by 9.4pc to $112.45/dmt cfr Qingdao this year.
