보기: S&P Global Platts opens market consultation on TSI-IODEX methodology alignment

Video Transcript

S&P Global Platts opens market consultation on TSI-IODEX methodology alignment

With Ciaran Roe, global methodology specialist, metals

Welcome to this Platts methodology review video. I’m Ciaran Roe, global methodology specialist for metals.

On May 15, Platts published a subscriber note marking the start of a formal market consultation into possible methodology changes to its TSI-62% and Platts’ iron ore index, or IODEX, price series.

These two prices are used widely in derivative and physical contract settlement. For this reason, Platts is seeking feedback over the next month from as wide a cross-section of the market as possible.

Platts welcomes feedback from all parts of the market.

Please send any feedback to: pricemethodology@spglobal.com by June 15. For full details of the proposed methodology changes under discussion, please consult: https://www.platts.com/subscriber-notes

The proposed implementation date of these changes is January 2, 2018. Both TSI and IODEX would continue to be published, but as two identical values. The names of these prices would remain unchanged.

The upshot of these changes would be to eliminate the price difference between the TSI-62 and IODEX price series, taking away this basis risk caused by the TSI-IODEX differential when market participants hedge their physical IODEX exposure using TSI-linked derivative contracts.

Market participants have asked Platts to eliminate the price difference between these two price series for several years and, as index-linking in the spot market has increased, these calls have also become louder.

So, what is the process being put forward?

The consultation involves three methodology changes, which would merge the two methodologies:

1) A change from a 6pm Singapore time cut-off to a 5.30pm time-stamp for the TSI-62% index
2) Formalizing the delivery window for the TSI-62% index to become 2-8 weeks forward from “within 8 weeks”
3) Adjustments to the IODEX specification

Ancillary to these changes, a rationale for TSI-62% would be published. This rationale would describe how the final index value was reached and how data was treated by the assessment team. All the data used in the assessment would be visible in the rationale.

Platts already publishes a full, transparent rationale in its Steel Markets Daily publication which describes in detail how IODEX was assessed and lists all the data underpinning the assessment value.

In order to publish a rationale for TSI-62, Platts would have to discontinue receiving submissions pursuant to the existing TSI Data Provider Agreements for companies submitting to TSI’s Iron Ore indices.

I’ll now go through the proposed methodology changes in more detail.

TSI-62’s 6pm cut-off would change to become a 5.30pm timestamp—aligning with IODEX. Therefore, transactions, and competitive, firm bids or offers valid at or closest to 5.30pm would be given highest weight in the index price.

This would mean that volume-weighted averaging would no longer be used in valuing the TSI-62% index.

Such a change would be made in order to fully reflect the intra-day nature of the seaborne iron ore market.

As you can see in this graph, visible intraday price movement in the iron ore market is a reality. Each point on the graphic shows the normalized price for an iron ore cargo traded on a single day in March last year. Cargo values moved nearly $7/dmt in a few hours.

Rapid developments in the derivatives market, both on- and off-shore, combined with increased visibility into physical pricing thanks to various trading venues have aided this development.

Using end-day pricing techniques would fully reflect the fact that iron ore prices can now change during the course of an afternoon, mirroring how many fast-moving commodity markets are priced in the physical and derivatives segments.

For further details on this change in the iron ore market, take a look at Platts’ white paper on this subject, published April 25th.

DELIVERY WINDOW

Moving onto the second proposed change: 2-8 weeks forward is the window within which more than 97% of observed spot deliveries fall.

The TSI-62% index would move to formally reflect these deliveries.

Using observable spot market data from the first four months of 2017, Platts’ data shows one cargo due for delivery before 2 weeks forward; while 2.24% were for delivery after eight weeks ahead.

Meanwhile, 17.5% of cargoes tracked were for delivery five weeks ahead (+/- 1 day).

In conjunction with the visible intra-day price movement, market participants have also started to increasingly price cargoes depending on when they are likely to be delivered to China. This physical forward curve can move from backwardation, to contango or be in a flat structure for the 2-8 week period.

The average of this 2-8 week physical forward curve would be used to value TSI-62, maximizing data available while reflecting the potential for value differences caused by different delivery dates.

IODEX SPECIFICATION

As part of this series of methodology changes, Platts is also proposing to alter the specifications of IODEX to move the assessment further in line with the most liquidly-traded medium grade fines brands in the spot market.

In this graph, the observed spot trade of various brands is represented by the circles. The proposed changes would be to silica, alumina and phosphorus levels as well as to the minimum cargo lot size under assessment.

Thank you for watching this video. I hope that you have found it useful and please refer any feedback or questions to the email address on the foot of the screen.

FEEDBACK

Please send any feedback to: pricemethodology@spglobal.com by June 15. For full details of the proposed methodology changes under discussion, please consult: https://www.platts.com/subscriber-notes