The portside iron ore market will coexist with the seaborne market as both play a crucial role, according to UK-Australian mining firm Rio Tinto and Australian resources firm BHP.
"The seaborne iron ore market is important and the portside market is equally important," UK Australian miner Rio Tinto's head of commercial for iron ore Sheng Chen said at the Singapore Exchange Iron Ore Forum on 17 May. The portside market allows Rio Tinto to access new customers and provide tailor-made iron ore products, Chen added.
Rio Tinto sold 14mn t of iron ore in the portside market last year, up from 5.5mn t in 2020. The company's portside operation handles iron ore from Canada and Western Australia's Pilbara, as well as third-party product.
This view was shared by Rod Dukino, BHP's vice-president of marketing and sales. The two markets will coexist and portside plays an important role for just-in-time delivery, he said.
"Renminbi and USD markets can co-exist," Brazilian mining firm Vale's marketing director of iron ore and coal Rogerio Nogueira said. Vale has had portside iron ore operations for over five years, with blending facilities in China.
The Argus 62pc seaborne index stood at an average premium of $6.73/dmt to the portside index last month, compared with a spread of $5.64/t in April last year. The spread averaged $9.14/t in February, compared with $0.73/t in the same period a year earlier.
The persistent wide spread has raised questions about the drivers of seaborne prices, the influence of derivatives on physical pricing and a dearth of sufficient fixed-priced spot seaborne deals. Some market participants explained the spread based on a bullish market outlook amid expectations of stimulus support for the Chinese economy this year. Others have said that stimulus expectations are already priced in and there is limited further upside to iron ore prices from that.
The Singapore Exchange's 62pc iron ore futures contract is the most traded iron ore derivative outside China. The movement in iron ore futures prices on China's Dalian Commodity Exchange usually affects physical portside iron ore trade.
The CME launched portside iron ore futures contract earlier this year. While seaborne and portside markets price the same products, the latter includes cargoes with shorter delivery times, payments in yuan and smaller lot sizes compared with the typical Capesize cargoes in the US dollar-denominated seaborne market.
China's main economic planning agency the NDRC reiterated on 17 May that it would continue to strengthen market supervision and crack down on illegal activities such as fabricating and spreading false information about price increases, hoarding for profit, price gouging and malicious speculation.
The Argus 62pc index stood at $129.10/dmt on 17 May, down by 40pc on the year.
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