Falling iron ore swaps prices Monday after a recent run of daily falls has left benchmark FOB Brazil prices potentially hedgeable into the low $20s/dry mt for loading in 2016, according to Platts analysis.
The Calendar-2016 swap based on the IODEX 62% Fe fines assessment was assessed by Platts at $36.45/dmt CFR China on Monday, the lowest ever price so far for the contract.
Bid-to-offer levels for Cal-16 on the more liquid TSI 62% Fe fines CFR China contract was at $36.25-$37.00/dmt around 5:30 pm Singapore time, with TSI assessing the contract at $38.25/dmt as of 6:30 pm Singapore.
As industry formulas in long-term multi-year contracts between miners and steel mills use fixed freight rates and bunker fuel oil adjustments to netback CFR China iron ore references to an FOB Brazil basis, the slide in iron ore swaps has made new lows in FOB prices visible.
This type of netback formula is similarly extended and adapted for loading points around the Atlantic.
Some contracts are now said to be referencing a fixed freight factor of around $17/mt, with 380 CST bunker fuel oil prices in Singapore used for further adjustments.
For 2016, an iron ore FOB Brazil price below $25/dmt is now hedgeable, according to market swaps values, with Singapore 380 CST bunker swaps for first quarter 2016 at $218.25/mt Monday, indicating a new low for the quoted period.
Even in the low $20s/dmt, there may be margin left as Vale brings on further new capacity in its Carajas system later next year. The weak Brazilian real and cost improvements took Vale's average iron ore FOB costs down to $12.70/mt in the third quarter.
In the freight market, reference Brazil, Tubarao-China, Qingdao Capesize rates were assessed Monday at $9.40/mt, recovering after breaching below $8/mt around November 20.
For contract iron ore buyers exposed to the main China CFR fines indexes in purchases of varying fines, concentrates, pellets and lump ores, the gap between netting back on industry freight formulas, or using spot freight rates, may leave the former longer-term accords preferential.
