Pricing Structures under new Iron Ore Market...
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Pricing Structures under new Iron Ore Market Dynamics Metal Bulletin China Iron Ore Conference Beijing 28-29 April 2009 John Barkas Metalytics Pty Limited
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Transcript of Pricing Structures under new Iron Ore Market...
Pricing Structuresunder new
Iron Ore Market Dynamics
Metal Bulletin China Iron Ore ConferenceBeijing28-29 April 2009
John BarkasMetalytics Pty Limited
April 20092
About Metalytics …
High-level resource sector economics advisory services
Specialisations Iron Ore and Steel Industries Nickel and Stainless Steel Aluminium and alumina Energy and Infrastructure Base Metals mining and smelting
Metalytics is proudly affiliated with
who advise power utilities, governments, and large corporate clients around the world
We also have co-operative arrangements with World Mine Cost Data Exchange
April 20093
Agenda
Market and price outlook as global economies recover
Changes are inevitable, but what will be the drivers?
Contract vs. spot sales: where is the market heading?
April 20094
Pricing principles
Market Clearing Price The price that clears the market of all supplied product Supply and demand are in equilibrium
Stable Market Equilibrium Fundamentals are constant
Unstable Market Equilibrium Temporary equilibrium – dynamic fundamentals Exchange rates, interest rates, costs, product mix/substitution,
economy, taxes etc.
April 20095
Benchmark price changes – Australian fines
April 20096
Of price and power …Australian Benchmark Fines Prices
April 20097
0
200
400
600
800
1000
1200
1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Mill
ion
Ton
nes
Riding the iron horse – world pig iron production
1929
1932
1937
-50%
1941
1945-35%
1979
1982-14%
1989
1992-7.5%
Great Depression AsianCrisis
April 20098
World iron ore consumption
Asia is the epicentre of growth
April 20099
China – the giant shouldering the burdenWorld Steel Production
April 200910
Key iron ore import markets
April 200911
Australian fines prices, CFR China
References: BHP Billiton, Rio Tinto, Tex Report, Metal Bulletin, Steel Trade Today, Metalytics Spot CFR price for 63.5% Fe fines
April 200912
Brazilian fines prices, CFR China
References: Vale, Tex Report, Metal Bulletin, Steel Trade Today, Metalytics Spot CFR price for 63.5% Fe fines
April 200913
Spot the benchmark
Spot CFR price for63.5% Fe fines
Brazil based on SSF
Benchmark pricesnormalised to 63.5% Fe
Spot freight ratescalculated on a dry basis
References: BHP Billiton, Rio Tinto, Vale, Tex Report, Metal Bulletin, Steel Trade Today, Metalytics
April 200914
Price response to changes in blast furnace output
April 200915
The spot market – from filler to indicator
China’s explosive growth createda significant spot market
2005 Mainly for Indian exports Quality and consistency issues
2008 Rio & BHPB ramp up spot sales Price Indexes emerge Swap market based on Index BHPB pushes index-based prices –
Baosteel and BlueScope contracts No new benchmark contracts
China Import Market
SpotSpot
References: CMN, Tex Report, Metalytics estimates
April 200916
Potential to overwhelm
April 200917
Looking forward… More market-responsive price systems Mix of:
Benchmark Hybrid – periodic adjustment Index-based Spot
Global recession means some demand lost forever Chinese market improvement in 2009 Other markets stabilising 2010-11
Major contract price reversal in 2009
Industry shakeout – resetting goals and plans Rationalisation Projects delayed, deferred, and reconfigured Marginal producers squeezed out
Longer term Use of hedging – swaps and futures e-auction platforms Solid prices and margins for cost-efficient producers
Thank You
April 2009
Metalytics Pty LimitedLevel 9, 280 George StSydney NSW 2000Australia
Ph +61 2 9225 6400
MetalyticsMarket Analysis and Economics Advisory Services
Metals and Resources Industries
