Volatility in iron ore market amid volatile trading environment in 2021: S&P Global Platts

Volatility gripped the iron ore market last year. Huge price movements saw multi-year highs followed by steep falls as supply and demand whiplashed over the course of the months.

S&P Global observed 969 spot transactions for seaborne iron ore, up 3.2% from trades in 2020. The volume of spot seaborne iron ore trades rose around 6% year on year to over 118 million tonnes in 2021. Fines accounted for 80% of observed Asian spot trades for the year, followed by lump at 15.8%, pellet at around 1.7% and concentrate just shy of 0.7%.

A larger number of trades were done via bilateral negotiations – increasing from just over 41% of the total trades observed in 2020 to 60% in 2021. Bilateral negotiations included spot and strip tenders. Strip tenders were multiple spot cargoes sold as a set to be delivered over several months, usually with a cargo to be delivered each month, and with several strip tenders including options for sellers to include more cargoes at their discretion.

This was more apparent in the beginning of Q3 when prices started plunging amid an oversupplied market with low demand. In China, mills were reselling their cargoes as they shut down blast furnaces or enter planned maintenance to comply with output control goals.

Over Q3, international traders said the potential oversupply of spot cargoes in the last quarter in 2021 casted a cloud over buying interests. Bilateral negotiations allowed the miners to get a broad view of the price levels in the market before deciding to award the cargoes. The percentage of transactions done on a fixed-price basis also fell sharply in Q3 as buyers preferred index-linked trades to capitalize on falling prices. On average, 2021 saw only 26% of the trades being done on a fixed price basis, down from 29% in 2020. The other 74% of the trades S&P Global observed were done on floating basis, which is index-linked.

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