Iron Ore Trading Enters into the Era of Diversification · PDF fileIron Ore Trading Enters into the Era of ... Gaming up between Demand and Supply, New Model of Trading ... supply

Iron Ore Trading Enters into the Era of Diversification

You Song,

Beijing Iron Ore Trading Centre

27 November, 2014

1 Transformation of Global Iron Ore Market

Gaming up between Demand and Supply, New Model of Trading Channel

Contents

2 China Iron Ore Spot Trading Platform in Operation

Promoting the Transformation of Trading Method and Pricing Mechanism

3 Vision of the Development of China’s Iron Ore Spot Trading Platform Action Based on Actual Situation, Innovation and Progress

3 27 November, 2014

2009 2011 1980

The iron ore negotiation mechanism was

stabilized and continued for nearly 3

decades, till 2007. The negotiation mainly

took place between the three major iron

ore suppliers and the steel mills in Asia,

Europe.

In April, SGX started iron

ore swap settlement

service

Transformation of Iron Ore Pricing Mechanism

Quarterly pricing has gradually been changed to more

flexible iron ore pricing strategy – spot quarterly,

monthly, even daily pricing based on iron ore index as

the leading mechanism. The spot trading model has

gradually become the trend, acceptable by the

different parties on the market.

4 27 November, 2014

2013 2014 2012

Transformation of Iron Ore Pricing Mechanism

China Iron Ore Spot Trading Platform has

officially started to be in operation, and

the iron ore trading has gone into stable

development.

On Aug 4, with the approval of the People’s Bank of

China, Shanghai Clearance Centre started officially the

first domestic OTC iron ore financial derivatives s

business – RMB settlement service for iron ore swap

business.

On Oct 18, the iron ore futures contract was traded in Dalian

Commodity Exchange, which was the first physical delivery

of the iron ore futures trading contract in the world,

symbolizing the official start of the “Chinese Version” iron

ore futures trading.

5 27 November, 2014

Long-term Contract: Its Rationality and Limitation

Rationality

Its highly specificity makes

both sides of demand and

supply to set up stable

relationship.

The annual contract is good

for both sides to arrange

production planning and to

get stable financial support

It reduces transaction cost of

risk management

Limitation Centralized procurement and

group negotiation take up

huge costs of efforts and time.

The demand side has different

requests, making it difficult to

get consensus for negotiation

expectation.

In case of price spread between

spot and long term contract,

both sides of demand and

supply have relatively high

probability of default.

6 27 November, 2014

Index Pricing: the Current Indexing Method in Controversy

Part of the current index is in fact a kind of appraisal index, not trading

index. The index that can be truly reference and instructive to market should be

based on real time transaction on the trading platform and the reported data

information, which is the weighted average index drawn from statistics

calculation method.

Market Price Appraisal

Trading Index

Statistics Data

Index Appraisal

7 27 November, 2014

Basis Pricing

Transaction on exchange

Over-The-Counter

Iron Ore Spot Trading

Iron Ore Swap

Iron Ore Futures Trading

Exchanges Start to Play a Key Role in the Iron Ore Pricing Market

Through the arrangement of the system, the transaction flow and

bidding contract are standardized, with open and transparent transaction,

improving transaction efficiency, reducing transaction costs, and

prevention of transaction risks.


Gaming up between Demand and Supply, New Model of Trading Channel

Contents


Promoting the Transformation of Trading Method and Pricing Mechanism

3 Vision of the Development of China’s Iron Ore Spot Trading Platform Action Based on Actual Situation, Innovation and Progress

9 27 November, 2014

Launch of the Platform and Establishment of COREX

China Iron Ore Spot Trading Platform

was jointly founded by CISA, CCCMC, and

CBMX, and independently operated by

CBMX. This platform was started on Jan 16th,

2012 and officially in operation on May 8th.

COREX was initiated and set up by CISA, CBMX, Baosteel, Angang,

Shougang, Hebei Steel, China Minerals, Sinochem International, CITIC

Metal, Vale, BHP Billiton, Rio Tinto and FMG. It was approved by Beijing

Municipality People’s Government and relevant government agencies to

be registered in Beijing as a joint venture, with business scope as:

providing iron ore and other minerals spot trading service, market

management, and business consultancy.

10 27 November, 2014

Steady Increase of Transactions’ Reports

Up to 20 November 2014, the transactions totaled 280, with total

tonnage traded 32.4 million tons, seaborne transactions reached 238

deals, totaling 30.20 million tons, USD3.49 billion; the port spot

transactions reached 42 deals, totaling 2,205,300 tons, RMB2.232 billion.

90.00 160.00 200.00

580.00 570.00 570.16 633.33

1,090.00 1,270.00

6,780.00

0.00 2,000.004,000.006,000.008,000.00

Newman LumpsNewman Blended Lumps

58% Fines 1PB Lumps

Yandi Fines 1Vale62.5 Fines

Carajas FinesNewman Fines

Mac FinesPB Fines

Source: China Iron Ore Spot Trading Platform

Transaction Volumes Breakdown by Products (，000 tones) in Year 2014 (to 20 November)

0

10

20

30

40

2012

-5

2012

-7

2012

-9

2012

-11

2013

-1

2013

-3

2013

-5

2013

-7

2013

-9

2013

-11

2014

-1

2014

-3

2014

-5

2014

-7

2014

-9

2014

-11…


Transaction Volumes (to 20 November 2014)

32.4 milltion tons


Continuous Increase of Members and Further Improvement of Structure

Up to 20 November, 2014, there are 250

members, covering East Asia, Middle East, Europe,

America, and Australia, with members in both

upstream, and downstream of iron ore trading.

Japan

Brazil Australia

Iran

Germany

Singapore

Membership Structure

7 4

53

88

98

境外矿山境外钢厂境外贸易商境内钢厂境内贸易商

Overseas Mines

Overseas Traders Domestic Steel Mills

Overseas Steel Mills Domestic Traders


China Iron Ore Spot Trading Platform Function and Service



Trading Object (31)

Fines Typical

Newman fines, Mac fines, Kimbuba mixed fines,

Yandi fines 1, Yandi fines 2, PB, Rob River fines, FB,

FMG special, FMG super special fines, MNP, Carajas

fines, Vale64 fines, Vale62.5 fines, Vale 58 fines

Regular 65%、63.5%、62%、61.5%、61%、58%、56%

Lump Ore

Typical Newman mixed lump, PB lump, Rob River lump, Vale

lump

Regular 65%、63%、62%

Pellet 63%

Pelleting fines 65%

Timely A

djustment Based on M

arket Dem

and



Based on whether the goods arrive and be cleared through the customs, they are categorized into 3 types: spot en route, spot in bonded area, and spot at port. Based on whether there is in advance trading credit matching, settlement in USD or RMB, 3 trading models are categorized: A international en route, B international bonded area, and D domestic port.

The trading credit matching model is used for A, B, and D – that is, a member must have, in advance, select at least 3+ members as trading partners, and the system allows only the trading between the members that have done credit matching.

To sell and to buy by the same member is forbidden; trading among affiliated enterprises is also forbidden.

Filtering of mem

ber transaction

Credit Matching Model



Floating Price Trading Model

Covering the mainstream market index

trading settlement methods

Multi settlement price calculation

formulas, which are close to market

trading practices.

Many variables of settlement price

composites

Close to iron ore spot settlement terms

Flexible settlement cycle selection

Wide application on platforms en

route spot, bonded area spot, E-

bidding and etc.

• CBMX COREX benchmark price • Platt’s index price of iron ore • Metal Bullion Index of iron ore price

(MBIO) • TSI • My steel iron ore price index

(MyIpic) • Argus iron ore index

• Monthly（1, 2, ……11, 12）

• Pre-B/L（1, 2, ………, 30 days）、Post B/L（1, 2, 3 ………30 days）

• Pre-NOR （ 1, 2, ………30 days ） , Post-NOR（1, 2、………30 days）

Integration of Different P

ricing Models




Since Jul 29th, 2013, we have started floating price trading model, and the

enthusiasm from members to use this model has been strengthened; since

2014, the transactions based on this floating pricing model have already

accounted 16% of the total transaction on this platform.

While introducing more domestic similar floating pricing models for iron

ore trading settlement price, we have increased the flexibility of the

platform and widened the application of domestic iron ore index, as well

as its influence on the market.

A international en route

D domestic port

USD trading RMB trading

Support Fixed Price and Floating Price Transaction




Support Fixed Price and Floating Price Transaction

Members are more willing to trade in floating price when the price volatility increases. Up to 20 November, 3.61 million tons were traded in floating price, accounting for 30.28% of total volume，and 93% of these transactions happened in second half of 2014.

0%

50%

100%

2014

-1

2014

-2

2014

-3

2014

-4

2014

-5

2014

-6

2014

-7

2014

-8

2014

-9

2014

-10

2014

-11（

to 2

0th

）

Fixed Price Floating Price


Transaction Volumes Breakdown by Pricing Method Year 2014 (to 20 November)



Iron Ore Spot Benchmark Price

Standard Price Selection Range

58% Yandi Fine1, Yandi Fine 2, Rob River Fine, FB Fine, FMG Special Fine, FMG super special fine, 58% fine, 56% fine

62% PB fine, Newman fine, Mac fine, Kinbuba mixed fine, 62% fine, 61.5% fine, 61% fine.

63.5% Vale62.5 fine, 63.5% fine

Benchmark Price = Platform Settlement Price +Platform Quote

+Offline Settlement Price+

Data Composite more truthful, comprehensive

Price more objective, reasonable

Issuance more timely

Guiding Q

uotation, Prevention of M

anipulation



Iron Ore Spot Benchmark Price

On Aug 4th, 2014, Shanghai Clearance House started officially the first domestic RMB

settlement for iron ore swamp business, and CBMX 62% ore benchmark price is listed

as iron ore swap settlement price, symbolizing CBMX iron ore spot trading benchmark

price being extended from spot market to derivative market and the influence of the

benchmark price being further extended.

Iron Ore Spot Benchmark Price in Mar 2013 – Aug 2014 (Unit: USD/dry ton)

Iron Ore Spot Benchmark Price in Mar 2013-Aug 2014 （Unit：Yuan/wet ton）

7090

110130150

2013

.3.1

120

13.4

.10

2013

.5.1

320

13.6

.08

2013

.7.9

2013

.8.6

2013

.9.0

320

13.1

0.8

2013

.11.

120

13.1

1.…

2013

.12.

…20

14.1

.26

2014

.2.2

720

14.3

.26

2014

.4.2

420

14.5

.23

2014

.6.2

320

14.7

.21

2014

.8.1

8

63.5%粉 62%粉 61.5%粉 58%粉

Unit: USD/dry t

Source: China Iron Ore Spot Trading Platform Aug 2014

500620740860980

2013

.3.1

120

13.4

.10

2013

.5.1

320

13.6

.08

2013

.7.9

2013

.8.6

2013

.9.0

320

13.1

0.8

2013

.11.

120

13.1

1.…

2013

.12.

…20

14.1

.26

2014

.2.2

720

14.3

.26

2014

.4.2

420

14.5

.23

2014

.6.2

320

14.7

.21

2014

.8.1

8

63.5%粉 62%粉 61.5%粉 58%粉

Unit: Yuan/wt

Source: China Iron Ore Spot Trading Platform Aug 2014

Guiding Q

uotation, Prevention of M

anipulation



Information on the Platform

Information services and product system include: “China Iron Ore Spot

Market Monthly Research Report”, “China Iron Ore Spot Trading Platform

Bulletin”, website transaction information, social media information

platform, mobile phone text and platform mobile phone version.

Timely Indication of Transactions

through Multi-channels



Safe Capital Management

Bank

CIBC HXB CCB

Support connection to many banking systems,

settlement of transaction service fees and deposits

Linking to banks, self funding



Establishment of 22 delivery ports, and setting up delivery warehouses in key regions

Confirm

ing comm

odity info, assisting delivery and receiving

Qingdao Dalian Rizhao Lanshan Caofeidian Huahua Tianjin Dongjiakou Jingtang Bayuquan Lianyungang Jiangyin Beicang Zhanjiang Taicang Luojing Zhangjiagang Nanjing Nantong Majishan Zhanjiang Fangchenggang


Gaming up of demand and supply, new models of trading channels

Contents


Promoting the Change in Trading Method and Pricing Mechanism

3 Vision of the Development of China’s Iron Ore Spot Trading Platform

Action Based on Actual Situation, Innovation and Progress


Vision of the Platform

Convenient and Effective E-Commerce Channel

——Information, Purchase and Sales

Equipped Exchange Functionalities

——Integrated Settlement, Delivery, Financing Services

Fair and rationale global commodity pricing mechanism

——Ferrous

Provide Services to the Industry and Physical Economy

谢谢 Thank you

Documents

Iron Ore Trading Enters into the Era of Diversification · PDF fileIron Ore Trading Enters into the Era of ... Gaming up between Demand and Supply, New Model of Trading ... supply