London, 29 May 2010

The Steel Index (TSI) daily iron ore spot reference price for 62% Fe content fines finished May at US$145.20 per dry metric tonne CFR Tianjin port in China. This is down $30.60/dmt from the month high of $175.80/dmt reached on 5 May. The price fell sharply from 12 May, losing an average of over $3/dmt per day for two weeks, before recovering slightly over the last two days from the month low of $142.70/dmt recorded on 26 May.

The sharp price falls in May were triggered largely by an absence of iron ore buying interest. Chinese steel sector sentiment deteriorated and steel prices declined after the Chinese government implemented measures to cool the domestic real estate market. Construction accounts for nearly half of all steel consumption in China and rumours have circulated recently that domestic steel producers have begun mothballing some blast furnaces in response to falling steel demand. Concerns also persist about the impact of the European sovereign debt crisis on the global commodity markets.

However, some market participants believe the tide has just turned. Steel prices are showing signs of recovery following the announcement last week that the NDRC will not issue a new residential property tax for at least three years which buoyed sentiment. Iron ore buying interest is returning but many traders and mills remain cautious, adopting a ‘wait and see’ attitude.

Since the collapse earlier this year of the annual fixed-price ‘benchmark’ pricing mechanism, TSI’s data plays a crucial role in physical iron ore market pricing as well as in financial trading instruments. Miners, traders and steel mills throughout the world have largely now adopted iron ore pricing agreements based on the preceding quarter or 3-month index average or, in some cases, the average daily iron ore spot prices for the lastest month.

Monthly Averages

The average May price for TSI’s 62% Fe reference product is $161.59/dmt. This is down over 9% from the April average of $174.09/dmt, but nearly $100/dmt higher than the average price for May last year.

TSI’s monthly prices are the values used for settling the cleared swap contracts offered on the Singapore Exchange ( SGX) and LCH.Clearnet in London, as well as other Over-The-Counter (OTC) forward contracts. SGX and LCH.Clearnet both use exclusively TSI’s iron ore index. Cleared trading volumes in these organisations continue to grow strongly, with over $1.9 billion of iron ore swaps cleared using TSI’s prices during the past 12 months.

Quarterly Averages

TSI’s average price for its 62% Fe reference product in the current quarter to-date (April-May 2010) stands at  $168.00/dmt. This is running more than 27% above the first quarter average for 2010, but the final quarterly average will fall if June’s spot prices remain around today’s levels which are more than $20/dmt lower.

TSI’s average price for its 62% Fe reference product for the past 3 months (March-May) is $157.53/dmt.  This 3-month value is being applied as the basis for the next quarter’s pricing (July-September 2010) in many index-linked iron ore supply arrangements and represents an increase of around 32% over the previous 3-month average (December 2009-February 2010), before freight rate movements are taken into account to derive FOB (free-on-board) prices.

TSI’s daily iron ore reference price for 58% Fe content fines finished May at US$101.80 per dry metric tonne CFR Tianjin port in China, giving a monthly average for May of $122.72/dmt, 13% lower than in April.  This price peaked at $150.50/dmt on 23 April.

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