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An iron ore index for all

May 29, 2009 - 00:00 GMT

Rapid growth in the global market for iron ore, combined with the changing pattern of trade in the commodity, has put the traditional system of annually negotiated contracts under strain. Cameron Hunt explains the derivation and benefits of Metal Bulletin’s iron ore index as an alternative benchmark.

The iron ore industry is very large, consolidated and conservative in its pricing and commercial agreements. Global consumption of iron ore is over 2bn tpy, and seaborne internationally-traded iron ore amounted to around 900m tonnes last year, making it the largest dry bulk commodity by some margin. Iron ore has traditionally been priced on annual contracts, against a benchmark settled between a leading supplier and a regional steel mill – a system that Metal Bulletin helped to broker in the 1970s – and there has been no tradable terminal market, unlike most other significant commodities. As the world’s largest steel producer, China has a big influence over iron ore demand, despite its steel output having been hit since June 2008: first by completion of construction work for the Olympics, and then by the financial crisis and global economic recession. China’s raw steel output was still up last year, at 500m...

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