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Metal Bulletin Iron Ore Index Guide

Methodology, Specifications and Usage


September 2014
Revised and Updated

Metal Bulletin Iron Ore Index (MBIOI) Guide


Methodology, Specifications and Usage
This guide is intended to introduce users to the market-leading Iron Ore Indices provided by Metal Bulletin.
The Metal Bulletin Group, which today incorporates Metal Bulletin, Steel First and American Metal Market have been reporting on
iron ore transactions since 1915 and were instrumental in the development of the annual benchmark system. Metal Bulletin has
been tracking the Chinese iron ore spot market since its creation in 2004. As the market developed and liquidity increased, Metal
Bulletin responded to market demands for a more robust pricing methodology, and led the develoment of index pricing.
Metal Bulletin provides ten individual iron ore indices, each representing different parts of the iron ore market.

Whats new?
This updated edition of Metal Bulletins Iron Ore Index Guide contains details on the upgrade of the 65% Fe
Brazilian Premium to a standalone index.
Since 1st September 2014, Metal Bulletin has directly replaced the premium with an index that represents the
total combined value of 65% Fe Brazilian material of the published specifications. This follows developments in
the spot market for similar material and market feedback. Further details on this are available on page 11.
Contents
Metal Bulletin Index Subscription Package
Introduction to Metal Bulletin Iron Ore Index Methodologies
Iron Ore Methodology Flow Diagram
MBIOI Usage Guide
Fines Indices- 62%, 58% and 58% Premium, CFR Qingdao
65% Fe Brazilian Fines, CFR Qingdao and 63% Fe Australian Lump Premium
MBIOI- 62 Historical Chart
65% Fe Blast Furnace Pellet and 66% Fe Concentrate Indices, CFR Qingdao
62% Fe China Port Stocks Index, RMB/WMT FOT
Chemistry adjustments - Fe and Si value-In-Use Indices
MBIOI Five-year report - Mining Five Years of Iron Ore Data
MBIOI Calendar and Price Consulting
Index calculation during periods of low liquidity
Frequenty Asked Questions

4
6
8
9
10
11
12
14
15
16
17
18
19
20

This document dated September 2014 supersedes all previous Metal Bulletin iron ore index
methodology documents. The most up-to-date methodology will always be available to
download at: www.mbioi.com
Metal Bulletin | 3

What do subscribers receive with


their Metal Bulletin Iron Ore
Indices package?
1. Ten iron ore prices and four coking coal prices
62% Fe Fines
58% Fe Fines
58% Fe High Specification Premium
65% Fe Brazilian Index - Premium upgraded to standalone index. Widening of normalisation range.
63% Fe Australian Lump Premium
65% Fe Blast Furnace Pellet
66% Fe Concentrate
62% Fe China Port Stock Index
Value-in-Use Index for Iron content and Silica
Premium Hard Coking Coal FOB/CFR
Hard Coking Coal FOB/CFR
2. Index History
A full history for each of the Iron Ore Indices, starting May 2008 for 62% Fe fines
3. Freight Rates
Coverage of the major freight routes with prices supplied by leading freight brokers
4. Historical Freight Rates
A full history of reported freight rates for major iron ore routes
5. Iron Ore News
Up-to-date iron ore reporting across markets, people, finance and freight
6. Index Commentary
Daily commentary on market dynamics, price direction, analysis of trends and recent data along with short-term
forecasts
7. Index Alert and Daily Newsletter
The latest prices are emailed to subscribers at 7pm Singapore time
Daily newsletter includes index commentary, price charts and latest market developments
8. Access to Iron Ore Index Analysts
We welcome interaction with our clients and are on hand to answer any specific questions on the indices and the market
9. Access to price consulting
The ability to price off-index iron ore
Insight into pricing strategies and industry developments
10. Regular iron ore spot market data and in-depth insights into the market

Metal Bulletin | 4

www.mbironoreindex.com
Daily alert direct to your inbox- latest iron ore news - spot market data - historical data
Subscribers to the Metal Bulletin Iron Ore Indices recieve a daily alert with all the latest index calculations direct to their inbox.
Access to all our prices is available online, including all historical data with latest prices available through the daily newsletter. The
website also provides the latest iron ore news and market developments.

Metal Bulletin | 5

Introduction to Metal Bulletin Iron Ore Index Methodologies


The Metal Bulletin Iron Ore Indices (MBIOI) are reference
prices for the iron ore spot market.
The Indices are tonnage-weighted calculations based on
actual transactions that have been normalised to a base
specification and delivery point, using the value-in-use for
different materials applied by the market.
DATA COLLECTION
The basis of all our indices is the data provided by the market. In
order to provide the most representative pricing for the
market, it is essential we are able to collect as many
representative data points as possible.
Metal Bulletin utilises a number of methods to collect data.
These include phone calls, email, website input and messenger
services across our offices in Singapore, London, Sao Paolo and
Shanghai.
All data is stored on secure servers and can be accessed if
required for auditing purposes.
Actual Transactions - All the Metal Bulletin Iron Ore Indices are
based on actual transactions, which are collected by us from
any market participant who is conducting trades on a China
spot basis.
Metal Bulletin will also collect assessments, offers and bids
from the market to supplement transactin data when
appropriate. This non-transaction price data will be weighted
at the minumum tonnagefor the index.
Metal Bulletin aims to collect full details of each transaction
including brand, commercial terms and any other details
relevant to value and pricing.

Chinese Partner - Metal Bulletin has partnered with Shanghai


Steelhome, a leading independent market intelligence, data
and consultancy company covering the Chinese steel industry.
Steelhome supplies daily transaction price data from its
widespread contact base of steel producers and iron ore
traders within China. This price data is integrated into the Metal
Bulletin Index model, making it the only index provider with
such access to Chinese data.
Trading Platforms - The development of various trading
platforms has led to a number of changes in the iron ore spot
market. Metal Bulletin will include price data from both
GlobalOre and CBMX in index calculations.
MARKET BALANCE
The Metal Bulletin Indices* have a unique mechanism to
structurally balance the influence of all sides of the market. This
reduces the potential risk of market distortions and bias in the
data.
Three Sub-Indices - The published index figure is the straight
average of three sub-indices, each of which contain data from a
single part of the market; producers, consumers and traders.
Each sub-index is a tonnage-weighted calculation of price data
normalised for chemistry and freight. Only the final indices are
published.
The use of three sub-indices means that each part of the
market has exactly the same influence on the final price as any
other removing the possibility of bias.
Transaction data recieved via GlobalOre will be entered into
each sub-index. This reflects the balanced nature of ownership
of the platform.

*Exception being China Port Stock Index - see page 15


Metal Bulletin | 6

NORMALISATION
Capturing Value-in-Use - The data is normalised using an
in-house developed model based on regression analysis of the
collected data points. The analysis allows Metal Bulletin to
capture the value-in-use applied by the market to different
materials, and normalise to a single specification.
Iron ore indices that are published daily have their
normalisation coefficients updated every month to reflect the
constantly changing value-in-use relationship of different
products and grades. Iron ore indices that are published weekly
have their normalisation coefficients updated every quarter.
Material that differs from the base specification but falls within
the target range is normalised to the base specification and
port. The base specification has been chosen in consultation
with the market to reflect the reality of the physical spot
market.
Payment terms - Payment terms are based on typical
commercial practice in the iron ore spot market. Transactions
that are conducted on different payment or credit terms can be
normalized back to the base specifications, taking into account
discounts, current interest rates and standard commercial
terms.
Material in different forms is excluded as appropriate from the
index in question. Domestic Chinese material, and material
imported by routes other than by sea, for example by train or
truck, is also excluded. Material that has been delivered and is
held on stockpile at the dock is also excluded except in the
China Port Stock Index.
MARKET REPRESENTATION
The Metal Bulletin Indices have been specifically constructed
to automatically exclude outliers and provide a fair market
representation through the three sub-indices.

Outliers - All data points that fall greater than 4% away from the
initial calculated index are excluded, and the index recalculated.
Outliers will be investigated, and attempts to unfairly influence
the index will result in the data provider being warned or
excluded.
Metal Bulletin reserves the right to see contracts and signed
paperwork before inclusion of the data in the calculation. If this
is refused then the data, or the data supplier, can be excluded
from the data collection process. Metal Bulletin reserves the
right to exclude data that is not fairly presented or is believed
may be an effort to distort the index.
If the material delivered is different to that expected at the
original transaction no changes will be made to the indices. The
spot price paid was for the expected material. Any changes
made in retrospect are between buyer and seller.
PUBLICATION
From 1st January 2014 the indices have been published daily at
7pm Singapore local time. They will not be published on
Singapore national holidays.
Singapore national holidays 2014* are as follows:
1st January 2014
31st January 2014
18th April 2014
28th July 2014
1st May 2014
6th October 2014
13th May 2014
22rd October 2014
25th December 2014
*source: www.mom.gov.sg
Where non-publishing holidays occur on a Friday, the weekly
indices will be published on the preceding working day and will
reflect price data from that weeks working days
Metal Bulletin has no financial interest in the level or direction
of the index.

Metal Bulletin | 7

Metal Bulletin Iron Ore Index:

Capturing the relationship between


different materials
Data collected
from wide range of
participants; with
option of NDA.

Phone

Email

Website

Chinese Data

One-way
Information flow
between Index
department and
editorial.

Materials from different origins


exhibit different value-in-use to
the Chinese market. As a result,
different origins and brands have
unique normalization curves and
coefficients

Metal Bulletin

Data Collection Model

Pilbara
Yandi

Metal
Bulletins
Calculated
Coefficients

Carajas
Other...

Normalisation procedure

Prices normalized based on Fe content and Freight rates


Freight rates

India
Supramax Route

Three sub-indices;
each tonnage
weighted to
balance market.

Producers

A preliminary Index figure


is calculated from the
three sub-indices. Each
sub index is volume
weighted.

Consumers

Metal Bulletin | 8

MBIO Index

MBIOI Website
www.mbioi.com

Reuters

Daily Email
Alert

Brazil

Capesize Route

The data from the days


model is collected and
stored to create the next
months correlation
coefficients.

Outliers lying more


than 4% away from
the mean price are
excluded and the
index calculated
once more.

Preliminary MBIO
Index Figure

The final index is the


non-weighted
average of the three
sub-indices.

Bloomberg

Traders

Australia

Capesize Route

Normalisation coefficients
based on value-in-use
curves are developed In
house. The coefficients are
created using the previous
months price data.

MBIOI Usage Guide


Physical Market
The primary role of the Metal Bulletin Iron Ore Indices is to
provide market participants with a fair and robust representation
of the physical iron ore spot market.
Our methodology and index specifications are designed to do
just this. The Metal Bulletin methodology provides users with a
robust and representative price for iron ore. As a result, the index
can be used by market participants to fulfil a number of
functions.
The global benchmark pricing system in iron ore ended in 2009
and since then the vast majority of transactions linked to spot
prices. This development has brought with it a number of new
challenges, most noticeably, the issue of price discovery. By using
the Metal Bulletin Iron Ore Indices as a basis for physical
transactions, market participants can be confident in a marketleading methodology.
Market negotiations rely on a robust iron ore price to act as a
benchmark that both counterparties are confident that they can
trust, and one that is accepted throughout the market.
A growing number of contracts are based on Metal Bulletin Iron
Ore Indices as market participant see the value and reliability of
our methodology.

As a result of this Metal Bulletin has developed a range of


different indices and premiums to provide market
participants with industry-leading coverage of the iron ore
spot market.
These new benchmarks mean that market participants
continue to have the best possible insight into the iron ore
market and the relative value of different iron ores.
Financial Market
The Metal Bulletin Iron Ore Indices have been produced to
meet the requirements of the financial market as well as the
physical market.
There are a number of key requirements that the Metal
Bulletin Iron Ore Indices satisfy for use in the financial
market. These requirements include a repeatable calculation
of the index, a mechanistic process with the removal of
human judgment, and that it is fully auditable.
The volatility that now exists in iron ore spot prices has led to
the development of a financial market in iron ore that
continues to see rapid growth in both liquidity and breadth
of use, allowing hedging and risk management. The Metal
Bulletin Iron Ore Indices can be used to settle OTC swaps.

The vast majority of material traded globally is not the same as


the index basis. As a result, an adjustment factor is often agreed
between buyer and seller in order to compensate for any
material difference in the iron ore being traded. In this situation
Metal Bulletin can assist the industry by providing specific
adjustment factors based on our value-in-use normalisation
curves along with the usage of our chemistry adjustment factors.
As the iron ore market develops we are seeing growing volumes
of material enter the spot market that differ significantly from the
62% Fe Fines benchmark.

Metal Bulletin | 9

62%, 58% and 58% Premium, Fe Fines CFR Qingdao


The MBIOI-62 is a benchmark price representing the iron ore fines
market. All transaction data within the specification maximums
below, are normalised to the base specification based on the valuein-use implied by the market. The MBIOI-62 is a daily index published
at 7pm Singapore time.
The MBIOI-58 is a price representing a growing part of the iron ore
fines market. All prices within the specification maximums below are

normalised to the base specification based on the value-in-use implied


by the market. The MBIOI-58 is a daily index published at 7pm
Singapore time.
In addition to the MBIOI-58, Metal Bulletin publishes a daily differential
premium for the 58% Fe high specification; low alumina and
phosphorous material (MBIOI-58P). The daily indices are rounded to
two decimal places. The premium is rounded to the nearest $0.50.

Index Specifications
MBIOI - 62

MBIOI - 58

MBIOI 58P (High Specification)

Price
US$ per dry metric tonne, CFR China
Material Origin
All Origins
Fe Content
Base 62%, Range 56% to 66%
Silica
Base 3.5%, Maximum 8.0%
Alumina
Base 2.0%, Maximum 4.0%
Phosphorus
Base 0.05%, Maximum 0.15%
Sulphur
Base 0.02%, Maximum 0.06%
Loss on Ignition (%DW)
Base 4.7%, Maximum 9.8%
Moisture
Base 8.0%, Maximum 10.0%
Granularity
Base Size >90% < 6.3mm, at least 90% <10.0mm, at most 40%
<0.15mm
Trade Size
Minimum 30,000 tonnes
Payment Terms
Payment at sight, other terms normalised to base
Delivery Port
Base Qingdao, normalized for any Chinese mainland sea port
Delivery period
Within 8 weeks
Publication
Daily at 7pm Singapore time

Price
US$ per dry metric tonne, CFR China
Material Origin
All Origins
Fe Content
Base 58%, Range 56% to 60%
Silica
Base 5.5%, Maximum 9.0%
Alumina
Base 3.5%, Maximum 5.0%
Phosphorus
Base 0.08%, Maximum 0.15%
Sulphur
Base 0.04%, Maximum 0.07%

Price
US$ per dry metric tonne, CFR China
Material Origin
All Origins
Fe Content
Base 58%
Silica
Base 5.5%
Alumina
Base 1.5%
Phosphorus
Base 0.05%
Sulphur
Base 0.01%

Moisture
Base 8.0%, Maximum 10.0%
Granularity
Base Size >90% < 6.3mm, at least 90% <10.0mm, at most 40%
<0.15mm
Trade Size
Minimum 30,000 tonnes
Payment Terms
Payment at sight, other terms normalised to base
Delivery Port
Base Qingdao, normalized for any Chinese mainland sea port
Delivery period
Within 8 weeks
Publication
Daily at 7pm Singapore time

Moisture
Base 8.0%
Granularity
>90%<10.0mm

Metal Bulletin | 10

Trade Size
Minimum 30,000 tonnes
Payment Terms
Payment at sight
Delivery Port
Qingdao
Delivery period
Within 8 weeks
Publication
Daily at 7pm Singapore time

65% Fe Brazilian Fines Index, CFR Qingdao

63% Fe Australian Lump Premium,


CFR Qingdao

The MBIOI-65-BZ is a benchmark price representing the iron ore fines


market. All transaction data within the specification maximums
below, are normalised to the base specification based on the valuein-use implied by the market. The MBIOI-65-BZ is a daily index
published at 7pm Singapore time. The price is rounded to the nearest
$0.50.

The Metal Bulletin Iron Ore Index Lump Premium reflects the
premium, in US/dry metric tonne units, which Australian origin lump
within the specifications defined below, commands on a spot basis
over the benchmark 62% Fe Fines Index (MBIOI-62).

Revised Price

This price, which was launched in January 2014, has been upgraded
from a premium to a standalone index. This follows developments in
the spot market for similar material and market feedback. Metal
Bulletin has also increased the Fe normalisation range to include
material that has between 63.5% Fe and 66.0% Fe. The base
specification of the price is unchanged.

The premium is published on a daily basis and is adjusted as and when


spot market transactions necessitate it. The premium is rounded to
the nearest 0.50.

MBIOI 65 - BZ

MBIOI - LP

Price
US$ per dry metric tonne, CFR China
Material Origin
Brazil
Fe Content
Base 65.0%, Range 63.5% to 66.0%
Silica
Base 2.7%, Maximum 3.7%
Alumina
Base 1.2%, Maximum 1.6%
Phosphorus
Base 0.045%, Maximum 0.060%
Sulphur
Base 0.01%, Maximum 0.05%
Moisture
Base 9.0%, Maximum 10.0%
Granularity
>90%<10.0mm, <40%<0.15mm

Price
US/dry metric tonne units (dmtu)
Material Origin
Australia
Fe Content
Base 63%, Range 61% to 65%
Silica
Base 3.5%, Maximum 5.0%
Alumina
Base 1.5%, Maximum 2.0%
Phosphorus
Base 0.08%, Maximum 0.10%
Sulphur
Base 0.02%, Maximum 0.04%
Loss on Ignition (%DW)
Base 5.0%
Moisture
Base 4.0%, Maximum 6.5%
Granularity
Max 13.5%<6.3mm Max 25%>31.5mm

Trade Size
Minimum 30,000 tonnes
Payment Terms
Payment at sight
Delivery Port
Qingdao
Delivery period
Within 10 weeks
Publication
Daily at 7pm Singapore time

Trade Size
Minimum 30,000 tonnes
Payment Terms
LC on sight, other terms normalised to base
Delivery Port
CFR Qingdao, normalized for any Chinese mainland sea port
Delivery period
Within 8 weeks
Publication
Daily at 7pm Singapore time

Since 1st September 2014, the price that previously represented the premium that 65% Fe
Brazilian Fines commanded over the benchmark 62% Fe Fines Index has been replaced by a
standalone index representing the specification above. The new reference price reflects the
total implied value of the product on a CFR Qingdao basis. The code for this price remains
MBIOI-65-BZ and acts as a direct replacement to the previous premium plus MBIOI-62.
Metal Bulletin | 11

The Metal Bulletin Iron Ore


$/tonne
200

6. Record high
$191.70/tonne, 17th February 2011

1. Index launched
23 May 2008, $180.52/tonne
180

160

4. Largest daily fall


$7.61/tonne, 24th May 2010
140

5. Most consecutive da
14, 10th March 201029t
2010/ 31st October 2
November 2011
120

3. Largest weekly rise


$14.27/tonne, 1-8th January 2010

100

80

60

2. Record low
$58.67/tonne, 31st October 2008
40
May-08

Aug-08

Nov-08

Feb-09

May-09

Aug-09

Nov-09

Feb-10

May-10

Aug-10

Nov-10

Feb-11

May-11

Indices - Historical MBIOI-62

7. Most consecutive days of falls


20, 8th September 20115th October 2011

ays of rises
th March
2011- 17th

10. Average after 5 years $135.98/tonne

8. Largest weekly fall


$25.80/tonne, 21-28th October 2011

Aug-11

Nov-11

Feb-12

May-12

9. Largest daily rise


$8.96./tonne, 8th October 2012

Aug-12

Nov-12

Feb-13

May-13

Aug-13

Nov-13

Feb-14

May-14

Aug-14

65% Fe Blast Furnace Pellet, CFR Qingdao


MBIOI-PT

66% Fe Concentrate, CFR Qingdao MBIOICO

The MBIOI-PT is a benchmark price representing the iron ore blast


furnace pellet market. All transaction data within the specification
maximums below, are normalised to the base specification based on
the value-in-use implied by the market. The index is rounded to two
decimal places. The MBIOI-PT is a weekly index published Friday at
7pm Singapore time.

The MBIOI-CO is a new benchmark price representing the iron ore


concentrate market. All transaction data within the specification
maximums below, are normalised to the base specification based on
the value-in-use implied by the market. The index is rounded to two
decimal places. The MBIOI-CO is a weekly index published Friday at
7pm Singapore time.

Index Specifications
MBIOI-PT

MBIOI-CO

Price
US$ per dry metric tonne, CFR China
Fe Content
Base 65%, Range 60% to 70%
Origins
All Origins
Silica
Base: 4.5%, Maximum: 6.0%
Alumina
Base: 0.4%, Maximum: 0.8%
Phosphorus
Base: 0.03%, Maximum: 0.05%
Sulphur
Base 0.01%, Maximum 0.02%
Moisture
Base 2.0%/DW, Max 3.0%/DW
Granularity
Maximum Size >90% >10.0mm
Compression Strength
Base 250daN, min 200daN
Trade Size
Minimum 10,000 tonnes
Payment Terms
LC on sight- other payment terms normalised
Delivery Port
Base Qingdao - normalized for any Chinese mainland sea port
Delivery
Seaborne Imports- within 8 weeks
Publication
Friday at 7pm Singapore time

Price
US$ per dry metric tonne, CFR China
Fe Content
Base 66%, Range 63% to 70%
Origins
All Origins
Silica
Base: 4.5%, Maximum: 9.0%
Alumina
Base: 0.5%, Maximum: 2.0%
Phosphorus
Base: 0.02%, Maximum: 0.06%
Sulphur
Base 0.03%, Maximum 0.10%
Titanium
Base 0.05%, Maximum 0.30%
Moisture
Base 8.0%/DW, Max 11.0%/DW
Granularity
Maximum Size >80% <0.15mm. Undersize maximum 20%<0.05mm
Trade Size
Minimum 10,000 tonnes
Payment Terms
LC on sight- other payment terms normalised
Delivery Port
Base Qingdao - normalized for any Chinese mainland sea port
Delivery
Seaborne Imports- within 8 weeks
Publication
Friday at 7pm Singapore time

Metal Bulletin | 14

62% Fe Port Stock Price - MBIOI - CPS


The China Port Stock Index represents the market for imported iron
ore sold at main Chinese ports.

The price is quoted in RMB per wet metric tonne, and includes 17%
VAT and port fees. The index is rounded to the nearest RMB.

The MBIO China Port Stocks Index (MBIOI CPS) is based on a


tonnage-weighted calculation of actual transactions, of imported
material conducted at specified Chinese ports. The prices of material
included in the specified range are normalised to the base
specification based on the value-in-use implied by the market. An
additional adjustment is applied to normalise the port of sale to the
base location, Qingdao based on the prior months relative prices.

Due to the nature of participants in the port market, the index is a


tonnage weighted average of all transactions. They are not split into
sub-indices as is the case in the rest of Metal Bulletins indices.
The normalised chemistry specification is identical to the benchmark
62% Fe CFR fines index in order to provide to best possible
opportunity for comparison.

MBIOI-CPS
Price
RMB per wet metric tonne, Free-on-truck
Fe Content
Base 62%, Range 56% to 66%
Origins
All Origins
Silica
Base 3.5%, Maximum 8.0%
Alumina
Base 2.0%, Maximum 4.0%
Phosphorus
Base 0.05%, Maximum 0.15%
Sulphur
Base 0.02%, Maximum 0.06%
Moisture
Base 8.0%, Maximum 10.0%
Granularity
Base Size >90% < 6.3mm, at least 90% <10.0mm, at most 40% <0.15mm
Trade Size
Minimum 500 tonnes
Payment Terms
Payment at sight, other terms normalised to base
Delivery Port
Base Qingdao, normalized for any Chinese mainland sea port
Delivery period
Within two weeks
Publication
Daily at 7pm Singapore time

Metal Bulletin | 15

Chemistry adjustment
Value-in-Use Indices
MBIOI Value-In-Use Index - MBIOI - VIU
Adjusting Prices for Iron and Silica Content
Metal Bulletins chemistry adjustments represent the market
implied value of individual chemistries based on regression
analysis of actual transaction data included in the Metal
Bulletin 62% Fe Fines Iron Ore Index.
Metal Bulletin represents the implied value of one percentage
point of Iron (Fe) and Silica (Si) which may be used as an
adjustment factor for material that differs from the published
62% Fe Fines Index base specification.
The relationship between price and chemistry in the iron ore
market is a complex one, and is generally acknowledged to be
non-linear. However, analysis of the spot market data shows
that a linear relationship between price and iron content can
be applied within certain ranges while maintaining statistical
validity.

Metal Bulletin recognises that the use of a linear adjustment


does not give the full relationship, and that a number of other
factors need to be taken into account, including other
chemistries and physical properties. The value-in-use
adjustments are intended as a tool for reference price
adjustments, all other factors being equal.
Note that these two indices measure the price impact of one
extra percentage point of that chemistry, all other factors being
equal (including iron content).

Value-in-Use Index Application Formula


Price of Iron Ore at Fe Grade XX% = MBIOI-62 + (% Fe difference
from 62% Fe x MB Fe VIU Index)
Price of Iron Ore at Si Grade X%* = MBIOI-62 + (% Si difference
from 3.5% x MB Si-VIU Index)
*The application range for silica adjusment is between 2.0% and 8.0%.

The chemistry adjustment factors are published on the first


working day of the month and are based on a regression
analysis of the previous months transaction data.

Metal Bulletin | 16

Mining five years of


iron ore data
Why is this Metal Bulletin Iron Ore Index report important?
This is the most in-depth report available in the market
covering international iron ore prices. The report takes
advantage of the large amount of data on iron ore prices that
Metal Bulletin Iron Ore Index (MBIOI) has been collecting
over the last five years.
The aim of this product is to improve the knowledge and
information available on the iron ore market through a deep
technical and statistical analysis of the historical data and its
relation to other relevant variables as never done before.
Over the last ten years the iron ore market has changed. This
evolution has been driven by many factors; arguably the
most important being increasing Chinese demand for iron
ore, and growing global production and trading.
These new factors have underpinned volatility and
uncertainty in the global iron ore market. One of the main
consequences of this uncertainty was that it made the once
dominant long-term iron ore benchmark price contracts
obsolete.
Metal Bulletin Iron Ore Index was launched in 2008 to
provide a complete package of key information and
transparent daily prices for the iron ore spot market.
The new Mining five years of iron ore data report provides a
further tool for the market. The report includes analysis of
the data by material properties including iron content and a
look at grade evolution. There is in-depth analysis showing
the relationship between material properties and price,
Value-In-Use, and a look at market concentration and
volatility analysis.

This study will provide insight into a range of key areas


including:
Historical evolution of MBIOI. Statistical analysis of trends
changes and distributions; including correlations with global
stock markets.
Data analysis by origin, chemistry, type of transaction.
Analysis of the data by material properties including iron
content and a look at grade evolution.
Leading indicators. Statistical comparison of a new
generation of indicators to MBIOI.
Study of the relation between iron ore prices and
macroeconomic variables.

For more details on this report please contact Metal Bulletin at mbioi@metalbulletin.com

Metal Bulletin | 17

MBIOI Calendar
MBIOI Calendar is a unique tool to stay up to date on relevant
iron ore, steel and economic variables that affect the
international iron ore market.
The MBIOI Calendar tracks data and announcements relevant
to the global iron ore and steel markets. Data from a wide
range of sources is available along with previous readings and
forceasts to provide user with the best possible tools to

understand what moves the iron ore market. Data releases


from a range of established agencies and industry participants
is available including the Chinese National Bureau of Statistics,
Chinas Iron and Steel Association, Port Hedland Port Authority,
Japans Economic and Social Research Institute and the major
miners and steel mills. Historical values of those variables can
also be provided.

MBIOI Price Consultancy


By using the extensive proprietary data series based on the
value-in-use of fines in the iron ore spot market, Metal Bulletin
is able to determine what the implied value of a specific
material is at existing market / index levels.
Almost all material differs in some way from the index
specification, and typically those price adjustments would be
done on a bilateral basis between the buyer and seller. The
Metal Bulletin model works by applying the value-in-use
relationships in reverse from the index value.
Value-in-use calculations take into consideration the soft
factors that would be missed by valuing iron ore on a bottom-up
chemistry basis. Many market participants place different
values on material above or below what the physical
specification may suggest. These values are captured in the
MBIOI pricing models.
Metal Bulletin | 18

Making use of this service


Subscribers to the Metal Bulletin Iron Ore Indices are able to
utilise this service on a consultancy basis. By providing
material specifications and origins to the Metal Bulletin Iron
Ore Index department on a confidential basis, we are able to
use our in house value-in-use curve to provide details of what
our model suggests the material can command on a spot
market basis at any given price level.
Note: Metal Bulletin is unable to say what any material is
necessarily worth on a spot basis. This depends on a number
of factors unique to every buyer and seller. This price
consultancy can only state what our value-in-use curves
suggest a material would commanded on a spot basis.

Index calculation during periods of low data liquidity


All the Metal Bulletin Indices are calculated based on price data collected from the market. The indices are transaction based; set up
so that actual transactions have the greatest effect on the final calculated price.
It is inevitable that occasions will exist where the indices cannot be calculated solely using transaction data and as such Metal Bulletin
will use assessments, offers and bids collected from the market. Data points that do not represent actual transactions will be entered
into the indices like transaction data but will be weighted according to the lowest tonnage permissible for the index.
On the occasion that there remains insufficient price data for calculation of an index Metal Bulletin will use the following methods in
order to calculate the index:
1.

Carry over verified transaction data from other sub-indices on the day.

2.

Carry over verified transaction data from the previous day in the appropriate sub-index.

3.

Carry over verified transaction data from the previous day from any sub-index .

4.

Carry over assessment data from the previous day in the appropriate sub-index.

5.

Carry over offer/bid data from the previous day in the appropriate sub-index.

6.

Carry over assessment data from the previous day from any sub-index.

7.

Carry over offer/bid data from the previous day from any sub-index.

8.

If no price data can be collected then the index price will be carried over.

Metal Bulletin | 19

FREQUENTLY ASKED QUESTIONS


About the Iron Ore Index
Metal Bulletin is a leading independent supplier of market intelligence and pricing to the global metals industries. MBs Iron Ore
Indices are an objective representation of the seaborne merchant market for iron ore delivered to China. The indices are based on
actual transactions, which are reported to MB by any market participant who is conducting trades on a CFR China spot basis. MB is
totally impartial, and seeks to report an open and transparent representation of the market. MB has no financial interest in the level
or direction of the index.
Is my data secure?
Data supplied to MB is stored in a secure system, with strictly controlled and limited access. Data on trades is not accessible to other
divisions of MB. Contributors are able to submit data via email to a dedicated email address.
Will other market participants be able to work back to my data?
The only number that is published is the final calculated index, which is a composite index number from a population of normalized
trade data. It is not possible back calculate data without already knowing the full data of every trade. In addition, the methodology
utilizes three sub-indices, one for each group of physical market participants, which are then combined on an equal weighting. This
further increases data security.
Who is the index for?
The index will be of interest to all market participants, both in the physical and financial markets.
Who can contribute to the index?
All physical market participants who are engaged in the CFR China iron ore spot market are encouraged to participate. Material of all
origin will be accepted, and included in the calculation, provided it meets the chemical, physical, and delivery specifications outlined
in the methodology.
Why use three sub-indices
This reduces any potential bias between the different market participant groups. Each part of the market will have exactly the same
infulence on the final index price.
How do you balance the market influence?
The model uses MBs established Index methodology. The model has a series of checks to make sure that all sides are equally
represented. Three sub-indices are created, based on a tonnage-weighted calculation of actual transaction data supplied by
producers/ consumers/ traders, which are then equally weighted. This ensures that all sides are represented without bias.
What about outlier data?
The model rejects any data point that is more than 4% away from the calculated index, and recalculates the model to one iteration.
This removes unrepresentative material as well as mistakes and attempts to unfairly influence the outcome.

Metal Bulletin | 20

What about small but unrepresentative deals?


The model is tonnage weighted, so these types of deals do not have a major influence. If they are more than 4% away, they are
rejected completely.
Why should I report data?
Supplying data will ensure that the model reflects the market. The model is open to data from all market participants in the iron ore
spot market. It is not restricted to a closed group or price setting panel.
Why are some indices daily and some weekly?
Our index is a mechanistic model process which removes subjectivity, rather than an assessment process which relies on human
judgment. This then requires good liquidity of data to conduct a meaningful statistical analysis. When transaction numbers are
limited the indices use data collected from across the week. Once sufficient transaction numbers exist an index can be calculated
daily. For further details on calculating the the indices in time of low data liquidity please see page 17.
How do you deal with different chemistries / grades?
Different material grades are normalised in the model based on the value-in-use implied by the market over the preceding month for
daily indices and the preceeding quarter for weekly indices. This increases liquidity at the base specification, and shows movements
in the underlying market.
How did you derive the base grade(s) used in your indices?
We have spent significant time in consultation with all sides of the market. Initial draft specifications, which are typically aimed at the
most liquid and representative grade, are issued to the market for comment before finalisation.
How many respondents does the Index use?
The list of potential respondents includes the whole spectrum of physical market participants. Naturally, only a proportion will be
active in the market on any one particular day. This involves contacts via our offices in Shanghai, Sao Paulo, Singapore and London, as
well as Steelhome contacts with whom we have a partnership. Steelhome are a Chinese firm that specialise in pricing for the steel
industry. Like Metal Bulletin they are independent and provide pricing, news, research and conferences. This partnership allows us to
utilise their expertise in the Chinese domestic market through their contacts on top of those provided by our own shanghai office.
How does your index allow for market structure with such a high concentration of sellers?
The sub-indices are based on a tonnage-weighted calculation of actual transactions normalised for iron content and freight. The final
index is the non-weighted average of the three sub-indices, allowing for equal representation from all sides of the market, and also
counters market distortion or cherry picking of data. Only the final index is published.
All data points that fall greater than 4% away from the calculated index are excluded, and the index recalculated once.

Metal Bulletin | 21

The pure spot market is not as concentrated as the contract market, with a long tail of suppliers. These include India, Iran, South
Africa, Brazil, Australia, Venezuela, Indonesia and Chile. Ultimately, we aim to reflect the market, so the concentration of sellers does
not affect the index.
What is your methodology for calculating normalisation coefficients?
The data is normalized using our in-house models. The value-in-use applied by the market is calculated through a regssion analysis of
collected data.
The value of any material or brand in the spot market is based on a combination of chemistries, physical parametres and a number of
soft factors. We do not impose premiums or discounts ourselves, we allow the market to do that and we reflect the relative value of
each material or brand to the base specification going forward. Perceived discounts and premiums belong to the Chinese market and
we simply reflect those. We have different curves for different materials and origins as appropriate.
How are freight rates addressed in the normalisation process? Is this done on a CFR basis or underlying FOB basis?
The index is produced on a CFR basis. Normalisation occurs with regard to the port of delivery relative to our base port Qingdao.
There is up to five days sailing time between ports in China, and as such, this can greatly affect the value in use that the consumer
place on a particular transaction. If the port is further north then a figure is subtracted from the official price to normalise it to
Qingdao. Ports further south have a figure added on the transaction price. The actual number that is added or subtracted is calculated
daily using freight figures received from a leading international shipping broker. We also take into account the different routes taken
along with different handling costs that exist at different locations. This gives us a very representative figure that changes
automatically with the freight rates.
How do you deal with trades reported using a long-term freight commitment compared to a spot freight rate?
No adjustment. Freight is up to supplier or consumer. Any advantage or disadvantage is the issue for the supplier as we are not
speculating to or from FOB prices.
How frequently are your normalisation coefficients re-calculated?
For our daily indices they are updated monthly. Our weekly indices are recalculated quarterly. For our value-in-use chemistry
adjustments recalculation also takes place monthly. The relative values of different grades and types of ore are constantly changing.
By updating coefficients at these frequencies we are able to capture these changes whilst the calculation retains statistical
significance.
How are actual quality variances reported when trades are advised on the basis of indicative/expected specification?
Eac h trade is agreed on expected delivery specifications. This is what the trade is settled on if it turns out to be different then that is
an issue between the two parties who agreed the contract, and who would typically have agreed penalties etc. The index is not back
adjusted.
What is not captured by the normalisation process, brand, synergies, other?
Some brands will have different values given to them. Our index represents an underlying value of the market and as such trades can
be settled against our price either at a premium or discount as deemed appropriate by the parties concerned.

Metal Bulletin | 22

Disclaimer
This Disclaimer is in addition to our Terms and Conditions as available on our website and shall not supersede or otherwise affect these Terms and Conditions. Prices and other
information contained in this publication have been obtained by us from various sources believed to be reliable. This information has not been independently verified by us. Those
prices and price indices that are evaluated or calculated by us represent an approximate evaluation of current levels based upon dealings (if any) that may have been disclosed prior to
publication to us. Such prices are collated through regular contact with producers, traders, dealers, brokers and purchasers although not all market segments may be contacted prior to
the evaluation, calculation, or publication of any specific price or index. Actual transaction prices will reflect quantities, grades and qualities, credit terms, and many other parameters.
The prices are in no sense comparable to the quoted prices of commodities in which a formal futures market exists.
Evaluations or calculations of prices and price indices by us are based upon certain market assumptions and evaluation methodologies, and may not conform to prices or information
available from third parties. There may be errors or defects in such assumptions or methodologies that cause resultant evaluations to be inappropriate for use. Your use or reliance on
any prices or other information published by us is at your sole risk. Neither we nor any of our providers of information make any representations or warranties, express or implied as to
the accuracy, completeness or reliability of any advice, opinion, statement or other information forming any part of the published information or its fitness or suitability for a particular
purpose or use. Neither we, nor any of our officers, employees or representatives shall be liable to any person for any losses or damages incurred, suffered or arising as a result of use or
reliance on the prices or other information contained in this publication, howsoever arising, including but not limited to any direct, indirect, consequential, punitive, incidental, special
or similar damage, losses or expenses.
We are not an investment adviser, a financial adviser or a securities broker. The information published has been prepared solely for informational and educational purposes and is not
intended for trading purposes or to address your particular requirements. The information provided is not an offer to buy or sell or a solicitation of an offer to buy or sell any security,
commodity, financial product, instrument or other investment or to participate in any particular trading strategy. Such information is intended to be available for your general
information and is not intended to be relied upon by users in making (or refraining from making) any specific investment or other decisions. Your investment actions should be solely
based upon your own decisions and research and appropriate independent advice should be obtained from a suitably qualified independent adviser before any such decision is made.
COPYRIGHT NOTICE: Metal Bulletin Limited, 2014. All rights reserved. No part of this publication (text, data or graphic) may be reproduced, stored in a data retrieval system, or
transmitted, in any form whatsoever or by any means (electronic, mechanical, photocopying, recording or otherwise) without obtaining Metal Bulletin Ltds prior written consent.
Unauthorised and/or unlicensed copying of any part of this publication is in violation of copyright law. Violators may be subject to legal proceedings and liable for substantial monetary
damages for each infringement as well as costs and legal fees.

Metal Bulletin | 23

For more information about the Metal Bulletin Iron Ore Indices and how they
can help you, please do not hesitate to contact the Index team:

mbioi@metalbulletin.com
Singapore
Christopher Ellis
cellis@metalbulletin.com | +65 65970924
Alexandra Archakova
aarchakova@metalbulletin.com | +65 65970921
London
Inaki Villanueva
ivillanueva@metalbulletin.com | +44 (0)20 7827 6468
Peter Hannah
phannah@metalbulletin.com | +44 (0)20 7827 6448
Shanghai
Karen Shi
karen.shi@metalbulletinasia.com | +86 21 5877 0857-35
Ginger Ding
ginger.ding@metalbulletinasia.com | +86 21 5877 0857
Hong Kong
Joanne Badger
joanne.badger@metalbulletinasia.com | +852 2842 6953
Australia
Ben Johnstone
bjohnstone@metalbulletin.com | +61 3 5221 0715

Metal Bulletin | 24