Iron ore was historically priced through annual negotiations between the world's largest steelmakers and their suppliers. However, in recent years, the Platts 62% Fe Fines CFR North China has emerged as the benchmark. Value-in-use is the term used to describe the adjustments made against a benchmark price to account for differences in ore quality as the costs incurred in the steelmaking process are influenced by differing ore chemistries. The premium or discount applied to the benchmark price for a specific ore is calculated from the difference in iron grade to the benchmark grades (65%, 62%, or 58%) and the impurity levels relative to trigger grades (e.g., silica levels over 5.5%). Key impurities considered are silica, alumina, phosphorus and sulphur.

As recently as January 23, 2018, the premium on quoted 65% iron ore vs. 62% iron ore was US$14.70/t which represents a 45% increase over its 2017 low of US$10.35/t (Source: Bloomberg (Platts)). The recent increases in high grade iron ore prices have been driven by changes in the marketplace including the permanent closure of Chinese electric induction furnaces, the drive by Chinese blast furnace operators to maximize blast furnace productivity by using higher quality sinter made from higher quality ores, a lack of supply response from high cost iron mines in China and elsewhere, and a limited supply of high quality iron ore fines, lump and pellet. In particular, the winter closure of Chinese sintering plants and therefore reduced supply of sinter has created an increased demand for high grade iron ore which partially offsets the lower production of sinter.

To derive the estimated realized price per tonne of iron ore sold, index prices need to be adjusted for the value in use premium, net of ocean freight and other transport costs. For example, the Platts 62% CFR North China index represents an iron ore price paid upon transfer of goods at the port in North China. The Feasibility Study estimates a value in use premium of US$14.38/t over LOM and ocean freight costs of US$15.12/t over LOM to derive a net FOB Pointe Noire realized price off of the base Platts 62% CFR North China price assumption of US$69.80/t over LOM.

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  Iron Ore Demand >>
Iron ore products come in many varieties (pellet, lump, concentrate, sinter feed, etc.), quality ranges (judged based on presence of deleterious elements like phosphorus, alumina, silica), grades (iron percentage)... More >>

  Iron Ore Supply >>
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