Rio Tinto sold Wednesday a rare cargo of iron ore lump via a spot tender, believed to be the first time it has done so through such a medium, customers of the mining company said Wednesday.
A 70,000-mt cargo of 62%-Fe Pilbara Blend lump was sold at $0.066/dry metric ton unit, co-loaded with 100,000 mt of 61%-Fe Pilbara Blend fines, loading July 17-26, industry sources said.
The price of the fines was predetermined as being at flat to the July average of Platts 62%-Fe Iron Ore Index values, adjusted for freight and iron content, according to the offer email Rio Tinto sent customers seen by Platts. Potential buyers were invited to bid only for the lump portion of the cargo on the basis of its premium over the IODEX, on a cents/dmtu basis.
Market participants said the PB lump price needed to be looked at in light of its being sold together with PB fines, which when sold on a floating price basis usually commands a premium to the IODEX. "It's so obvious that the fines price is being subsidized, which may artificially inflate the price of lump," said a source at a steelmaker in eastern China. Several other market participants said PB fines on a floating price basis would command a premium of around $0.50/dmt to the IODEX Wednesday. Platts assessed the spot lump premium June 25 at $0.0375/dmtu on a CFR basis.
PRICE DISCOVERY
Rio Tinto's sale of lump on the spot market comes as the industry undergoes a revolution that saw pricing shift to being index-linked from being bilaterally negotiated every quarter.
Most contracts between Chinese steelmakers and major lump suppliers have become priced on the monthly average of the Platts spot lump premium assessment.
"Rio Tinto told us two weeks ago they were planning to sell lump on the spot market for price discovery purposes," said a Singapore-based trader. However, he wasn't told whether the spot sales for lump would continue in the longer term. A Singapore-based spokesman for Rio Tinto declined to comment on the matter. Rio Tinto is the world's biggest lump producer, having recorded 58.1 million mt in 2013 output. Out of that, 52.1 million mt, or 90%, was PB lump, and the remainder Robe River lump.
BHP Billiton, which discloses sales rather than production figures, shipped 40.9 million mt of lump in 2013, while Anglo American saw 25.5 million mt in lump output.
Source; Platts