Adds context to comments by DCE president in paragaphs 8-9
Australia's two largest iron ore producers and China's second-largest steel producer backed new iron ore pricing mechanisms, including basket and brand indexes, at the industry's largest annual gathering today.
"We continue to support the development of a range of credible iron ore indices and the evolution of pricing in the market" with its more dynamic price spreads between different quality products, BHP vice-president of sales and marketing Rod Dukino said at the China International Steel and Raw Materials conference in Qingdao.
BHP supports the use of multiple pricing indexes and is reviewing brand indexes as a pricing mechanism to fairly reflect market levels, he said.
BHP was the first main producer to use a basket of indexes in 2014, indexing to an average of Argus and TSI. Rio Tinto sold on a basket of indexes in March this year.
"We will play our part to ensure that the market continues to develop in a robust way and a way that appropriately represents the transactions between consumers, producers and traders of iron ore," said Rio Tinto vice-president of sales and marketing Simon Farry. "We have successfully sold iron ore utilising a basket of indices and will continue to consider further use of these pricing mechanisms based on customer and market needs."
Chinese steel mills and mining firms have called for the use of more iron ore indexes to support healthy price formation, with the China iron and steel association Cisa earlier this year calling for an investigation of futures markets and spot market pricing mechanisms that diverge from the market.
Spot market indexes should avoid small sample sizes to accurately assess the market prices, with this goal of improving price discovery systems shared by producers, said Baoshan Iron and Steel president Hou Angui.
Dalian commodity exchange president Wang Fenghai said that that iron ore spot markets are following the path of more mature markets like oil, which have very liquid paper markets carrying more of the central price discovery function, while physical transactions are characterised more by being "basis trades", trading at a premium or discount to the futures.
For years the iron ore industry has grappled with its direction. Around half feel it should continue to forge a unique industry-specific development path, while others say it should simply replicate the development path of oil markets.
Argus publishes seaborne value-in-market brand differentials to the Argus 62pc ICX index for iron ore fines delivered cfr Qingdao, as well as implied floating premiums for the brands to the prompt-month forward price.
