Baskets support healthy price formation: Rio Tinto

Australian mining firm Rio Tinto said its use of a basket of two 62pc iron ore indexes to sell its flagship PB fines product earlier this year will support the health of seaborne iron ore markets.

"In March this year, we sold our first cargo utilising a basket of indexes. This is a small step, but a very important step towards supporting healthy international price formation," Rio Tinto's vice-president of sales and marketing, Simon Farry, said at the SGX Iron Ore Forum in Singapore today.

The producer sold a cargo of PB fines at a $1.50/dry metric tonne (dmt) premium to the April average of the Argus ICX 62pc Fe index and the Fast Markets MB62pc Fe index on 19 March. It was not only the producer's first sale linked to the average of more than one index, but also its first use of the Argus ICX. Previously, Rio Tinto almost exclusively used Platts' IODEX for spot and contract business. S&P Global Platts competes with Argus in providing price information.

"Iron ore prices that accurately reflect market fundamentals rely on a healthy and robust market for iron ore," Farry said. The consistency of Rio Tinto's PB fines product quality and spot availability has made it the centre of liquidity for seaborne 62pc iron ore trade. PB fines have accounted for 60pc of the 62pc segment's spot trade in 2019, Farry said.

Australian mining firm BHP was the first major iron ore producer to use baskets, indexing JMBF fines to a basket of Argus and TSI in 2014. It has increased its use of baskets over the past year. Today, a BHP cargo of 100,000t Yandi fines sold at a 55¢/dmt premium to the June average of the Argus ICX index and Mysteel 62pc index on the Globalore platform. Other BHP ores have also been indexed using a mix of the Argus ICX, IODEX and Mysteel 62pc index.

Chinese mills have for years called for more choice of indexes for spot and contract sales to give them flexibility and to make index providers more responsive to the industry.

China's government weighed in for the first time today, with key economic planning body the NDRC calling for stability on the iron ore market. The NDRC said it would work to co-ordinate and support more communication in the industry and with iron ore suppliers to explore "a more scientific and reasonable pricing system" for imported iron ore. It also called for policies to support domestic iron ore supply.