Falling Pilbara iron ore quality sparks grade benchmark tweak
The iron ore industry's key pricing benchmark for seaborne cargoes will be lowered as the quality of supplies from biggest exporter Australia worsens.
Platts, part of S&P Global Commodity Insights, will in January change its IODEX iron ore benchmark to 61 per cent iron content from the current 62 per cent, according to a notice to members on Tuesday.
It also plans to update its 62.5 per cent China iron ore spot lump premium benchmark to 62 per cent.
The proposed changes are in response to falling quality of Australian iron ore as mines in the nation's Pilbara mining hub age.
Rio Tinto is facing this issue at some of its existing projects, prompting significant investment in the region to maintain revenues from the steelmaking material.
'It marks a shift in the market, where what was once considered a sub-benchmark grade is now a core part of global trade flows,' David Cachot, an iron ore research director at Wood Mackenzie, said in emailed comments.
'It's a move designed to better reflect the realities of today's market.'
The iron content helps determine what price a customer pays and 62 per cent has been a common benchmark in the global seaborne market. It represents a middle ground of grades and is used as a base for negotiating premiums and discounts for different qualities in physical trades.
Price reporting agency Platts also said that from Tuesday it began publishing a daily spread of the current and proposed prices, so that market participants can better understand the updates.
With assistance from Alfred Cang.
Bloomberg
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