Last year, iron ore was dominated by volatility. Massive price swings saw multi-year highs and then steep falls as supply & demand shifted over the months.
With the past year now firmly behind us, let’s take a closer look at how the spot market fared throughout 2021.
S&P Global Commodity Insights’ Platts 62% Fe IODEX started the year at $164.5/dmt Jan. 4 and rallied to $233.1/dmt, an all-time high May 12, before dropping 48.9% from the peak to close at $119/dmt on Dec. 31.
We discuss the key trends in the iron ore industry, including data on brand-level market liquidity, price evaluation participation, and pricing mechanisms.
Price points and trades rising
S&P Global published 19,100 lines of iron ore price information, or “heards”, comprising fines, lump, pellet and concentrates in 2021, up 8.5% from 2020. S&P Global uncovered 969 spot trades for seaborne iron ore. This is 3.2% more than the 2020 trades.
S&P Global observed that spot seaborne iron ore trades rose by around 6% each year to more than 118 million mt in 2021. Fines accounted in excess of 80% of all observed Asian spot trades during the year. Next came lump at 15.8% and pellet at 1.7%. Concentrate was just shy of 0.7%.
S&P Global developed strong relationships with existing industry sources and continued to develop new sources. In 2021, 58 of the steel mills and 69 traders were involved in price reporting. About half of all trades were reported directly to S&P Global. The balance was collected by our pricing team using verification from multiple market sources. S&P Global also identified the counterparts in more than 50% of trades.
Bilateral negotiations
S&P Global observed a larger percentage of trades that were made through bilateral negotiations. This is an increase from 41% to 60% of total trades in 2020.
Bilateral negotiations included spot tenders and strip tenders. Strip tenders were multiple spot cargoes, often with one cargo per month. Sellers could also include additional cargoes in their strip tenders.
This was especially evident at the beginning of Q3, when prices plummeted amid an oversupplied and low-demand market. China saw mills resell their cargoes when they shut down blast furnaces and entered planned maintenance to meet output control goals. Over Q3, international traders claimed that buyers were being affected by the possible oversupply of spot cargoes in 2021’s last quarter. Before deciding to give cargoes, the miners were able to have a broad view of market prices through bilateral negotiations.
Fixed price trades
The percentage of transactions that were done on a fixed-price basis fell in Q3 as buyers preferred to use index-linked trades to profit from falling prices.
Platts IODEX plunged 30.25% from $218.80/dmt Jul. 1 to $152.60/dmt August 31. Prices continued to fall until September 20, when they reached $94/dmt.
In 2021, only 26% of trades were done on a fixed-price basis, compared to 29% in 2020. S&P Global found that 74% of trades were on a floating basis, which is index-linked.
Varying trade patterns in medium-grade fines
S&P Global observed a greater number of Pilbara Blend fines (or PBF) trades in H1 from Rio Tinto. However, iron ore prices fell in H2, and we saw more BHP spot freightes. This is because more South Flank mine production increased, which resulted in more spot Mining Area C, or MACF being offered and sold on spot market by BHP. Vale’s spot sales of their medium-grade Brazilian Blend fines, or BRBF, has been consistent throughout the year, averaging four cargoes a month, despite fluctuations in their supply.
Rio Tinto sold 18 cargoes PBF, their highest monthly volume for the year, in June as prices were still high. Their spot volumes fell in Q3 as iron prices plummeted. Meanwhile, Rio Tinto sold 21 cargoes of PBF in June, a record number for the year. The number of strips Rio Tinto sold in H2 rose from 6 in H1. The decrease in spot transactions could also have been due to the limited supply of PBF from the Pilbara region.
Source: Platts