Cme Group Inc. · NASDAQ:CME
Cme — CME Group / Platts Webinar: Is Iron Ore the Next Copper? (December 2010)
41 slides from Cme's conference presentation, Dec 1, 2010
Slide 1: Is Iron Ore the next Copper?
Is Iron Ore the next Copper? Discussing the iron ore market, indices and derivatives Webinar - 10:00EST; 1st December, 2010 Guest Speaker: Joseph J. Innace, Platts - Chief Editor, Steel Markets Daily Host: Paul Shellman
Slide 2: leveraged investment, and because only a percentage of a contract’s value is required to
Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders sh
Slide 3: Today's Agenda
Today’s Agenda • What's driving the iron ore market? Emerging market economies and their impact on industrial materials • Update on the iron ore prices, and other steel/metallurgical coal pricing • Spot market price assessments, Platts indices • Managing price risk; CME contract review • Q&A, summar
Slide 4: What's Driving Industrial Raw Material Prices
What’s Driving Industrial Raw Material Prices It’s all about growth of emerging markets Steel Consumption and GDP/capita • BRIC economies are the demand driver for industrial raw materials. • Urbanization is the major theme here. 1,000 kg World: South Korea Per Capita GDP • Steel consumption is clos
Slide 5: Market Dichotomy – Economies Operating at Variable Speeds
Market Dichotomy – Economies Operating at Variable Speeds China fighting inflation, while U.S. battles deflation U.S. and China M1 Growth • Leading engines of global growth running at different speeds. • China reports 4.4% rate of inflation in October, • USA continues to promote expansionary policie
Slide 6: Iron Ore Pricing Status
Iron Ore Pricing Status Pricing terms for iron ore has ramifications throughout the entire steel industry • Breakdown of “the benchmark pricing system” started in 2008 during volatile periods. • Migration to “market clearing prices” removes annual fixed price contracts and introduces short term pric
Slide 7: Steel Prices are not only Contingent on Iron Ore
Steel Prices are not only Contingent on Iron Ore Dependency on basket of raw materials, seaborne freight and logistics U.S. Integrated Mills HRB Production Costs – All Purchase • Iron ore, coking coal, metallics, ferro alloys and energy, contribute to the raw material basket that is used for integra
Slide 8: Removal of Annual Benchmarks Creates Pricing Gap
Removal of Annual Benchmarks Creates Pricing Gap Managing exposure to volatile prices is a core industry objective • Annual benchmarks for steel making raw materials now being replaced with shorter term pricing contracts. • Spot pricing removes structural stability previously provided with longer te
Slide 9: The New Normal for Steel Making Raw Materials
The New Normal for Steel Making Raw Materials Supply worries in short term, demand worries in the long term © 2010 CME Group. All rights reserved 9
Slide 10: Is Iron Ore the Next Copper?
Is Iron Ore the Next Copper? December 1, 2010 Joe Innace Chief editor, Steel Markets Daily CME Group webinar
Slide 11: The size of the iron ore spot market
The size of the iron ore spot market The typical size of a spot market is about 5 - 10% of the global delivery of that commodity. Delivery of all iron ore annually is around 1.7 billion tons globally. 1.0 billion is seaborne, of which, around 625 mil mt is imported into China. Non contract (LT) mate
Slide 12: Iron ore market around 1.7 billion metric tons
Iron ore market around 1.7 billion metric tons Contract ROW China Import Seaborne Spot China ROW Domestic Non LT Domestic Contract
Slide 13: The seaborne spot market could be around 225 million metric tons
The seaborne spot market could be around 225 million metric tons, 2010 estimate Brazil/Australia Not more than 30mmt India 115mmt ROW Grown to 80 mmt
Slide 14: Platts focus is the spot market
Platts focus is the spot market • Spot prices are established at the margin • Term contracts can be priced on Platts assessments • Paper swaps prices also settle off spot prices Platts assessments 14
Slide 15: IODEX 62% CFR China is now a global benchmark
IODEX 62% CFR China is now a global benchmark
Slide 16: Data is market tested
Data is market tested We designed the IODEX iron ore assessments to perform one function, that is to reflect the daily transaction or clearing price of a specification of iron ore fines, in the seaborne spot market into China. One of the key elements to achieve that function is peer review. This req
Slide 17: 'Heard in the market' alerts go out during the day
‘Heard in the market’ alerts go out during the day
Slide 18: Benchmarking is about defining consistent standards
Benchmarking is about defining consistent standards Time of trade Normalization: the art and science of converting all Delivery timing the dimensions of each unique transactions to a Quality common standard, for price comparison. Volume Location Terms of trade Credit & risk Assessment X speci
Slide 19: Platts analysis of Q1 2011 contract prices, Vale
Platts analysis of Q1 2011 contract prices, Vale Estimated Vale iron ore product prices for Q1 2011 Platts IODEX average Sep-Nov: $149.177/dmt CFR North China Platts 1%-Fe differential (60-63.5%-Fe) Sep-Nov: $5.710/dmt Product Fe Content (%) Moisture (%) CFR Price Change (%) from Q4 FOB Price $/dry
Slide 20: Platts analysis of Q1 2011 contract prices, Rio Tinto
Platts analysis of Q1 2011 contract prices, Rio Tinto Estimated Rio Tinto iron ore fines prices for Q1 2011 Platts IODEX average Sep-Nov: $149.177/dmt CFR North China Platts 1%-Fe differential (60-63.5%-Fe) Sep-Nov: $5.710/dmt Product Fe Content (%) Q1 FOB Q4 FOB Q1 DMTU Q4 DMTU (typical) $/dry mt $
Slide 21: Platts IODEX and Platts Hard Coking Coal assessments
3/ 15 / 3/ 201 100 120 140 160 180 200 220 240 260 22 0 / 3/ 201 29 0 $/dmt, mt /2 0 4/ 10 5/ 4/ 2 01 12 0 / 4/ 201 19 0 / 4/ 201 26 0 /2 5/ 010 3/ 5/ 2 01 10 0 / 5/ 201 17 0 / 5/ 201 24 0 / 5/ 201 31 0 /2 6/ 010 7/ 6/ 2 01 14 0 / 6/ 201 21 0 / 6/ 201 28 0 /2 7/ 010 5/ 7/ 2 01 12 0 / 7/ 201 19 0 / 7
Slide 22: IODEX vs. US Ferrous Scrap
IODEX vs. US Ferrous Scrap Price comparison: Platts IODEX 62%-Fe fines vs. US shredded scrap $/lt $/dmt 660 180 560 160 460 140 Platts iron ore fines assessment, CFR China (right scale) 360 120 260 100 160 80 Platts US shredded scrap assessment, delivered to US Midwest mills (left scale) Source: Pla
Slide 23: IODEX vs. US Ferrous Scrap
IODEX vs. US Ferrous Scrap Iron ore and scrap volatility, percent change, month-on-month 60.0% 50.0% 62%-Fe iron fines CFR China, pink line 40.0% 30.0% 20.0% 10.0% 0.0% Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- O
Slide 24: Platts IODEX and Platts China hot-rolled coil, FOB
Platts IODEX and Platts China hot-rolled coil, FOB Platts' m onthly price of China exported HRC vs. Iron Ore fines $/mt FOB Shanghai $/dry mt CFR North China 1100 200 180 1000 IODEX 62%-Fe fines, CFR N. China (right scale) 160 900 Hot-rolled coil price, FOB Shanghai (left scale) 140 800 120 700 100
Slide 25: Platts IODEX and Platts Black Sea hot-rolled coil, FOB
Platts IODEX and Platts Black Sea hot-rolled coil, FOB Platts' China iron ore fines and HRC FOB Black Sea m onthly prices $/mt FOB Black Sea $/dry mt 1200 190 1100 170 1000 150 Hot-rolled coil price, FOB Black Sea (left scale) 900 130 IODEX 62%-Fe fines, CFR N. China (right scale) 800 110 700 90 600
Slide 26: Our metals portfolio
Our metals portfolio Precious Minor Base Ferro Alloys Metals Stainless Steel Iron ore Coking Coal Scrap Coal Shipping Bulk Ores
Slide 27: So…is iron ore the next copper?
So…is iron ore the next copper?
Slide 28: Maybe it already is…Platts IODEX and COMEX copper
Maybe it already is…Platts IODEX and COMEX copper Platts IODEX 62%-iron ore fines vs. COMEX 1st pos Copper COMEX copper Platts IODEX, $/dry 450 $/lb mt 210 400 190 Platts iron ore, right scale 350 170 Comex copper, left scale 300 150 250 130 200 110 150 90 100 70 Source: Platts and COMEX 50 50 6/2/2
Slide 29: Platts IODEX and Dated Brent crude oil
Platts IODEX and Dated Brent crude oil $/dmt Platts iron ore and Dated Brent crude price $/bl 210.00 150 Platts IODEX price (left 190.00 130 170.00 150.00 110 130.00 90 110.00 90.00 70 Platts Dated Brent (right 70.00 50 50.00 Source: Platts 30.00 30 8 8 9 9 08 8 8 9 9 9 9 0 10 10 9 09 0 9 0 0 0 00 0
Slide 30: Spot price benchmarking requires Independence, Accuracy
Spot price benchmarking requires Independence Accuracy Transparency Methodology
Slide 31: Information Sources
Information Sources Anyone Active & Reliable in the market •Producers •End users •Traders •Brokers •Distributors •Shippers •Financial institutions •Government entities 31
Slide 32: Firm bids and offers help price discovery
Firm bids and offers help price discovery Platts has years of experience executing accurate and robust assessments. Platts does not and will not sign non-disclosure agreements with data providers • Platts assesses transactable market levels Offer Deals, bids and offers Transparency and consistency R
Slide 33: Platts key hot-rolled coil prices, $/MT
Platts key hot-rolled coil prices, $/MT $/MT Platts hot-rolled coil prices: China and Black Sea export; domestic US ($/MT) 1300 1200 US, ex-w orks Indiana in $/MT (green, started Nov 2006) 1100 FOB Black Sea (blue, started Nov 2006) 1000 FOB China, Shanghai (red) (started April 2008) 900 800 700 600
Slide 34: Steel market news, price assessments and supporting data
Steel market news, price assessments and supporting data
Slide 35: CME Group Mitigates OTC Derivative Trading Risks
CME Group Mitigates OTC Derivative Trading Risks Core Attributes of CME ClearPort: Security, Anonymity & Transparency Flexible Clearing Services open to OTC market participants OTC • Clearing is independent of trade execution • Significant mitigation of counterparty risk • Certainty of independent,
Slide 36: CME ClearPort
CME ClearPort Proven participation and product growth record CME ClearPort Firm Participation Evolution of CME ClearPort (over 10,000 trader registrations) 900 494,216 473,058 764 800 419,578 700 600 298,16 281,753 7 500 400 499 139,197 300 57,354 200 24,137 100 0 2002 2003 2004 2005 2006 2007 2008
Slide 37: Ferrous Metals Forward Curves
Ferrous Metals Forward Curves Products display price divergence Historical HRC Steel and Iron Ore Spot Prices Forward Prices as a % of Spot 125% 120% 115% 110% CME HRC (US$/st) 105% LME Billets (US$/MT) 100% Iron Ore 62% fines CFR 95% China (US$/MT) 90% SHFE Rebar 85% 80% Spot Mar-11 JLY 11 Nov-11 M
Slide 38: Iron Ore 62% Fe, CFR China (Platts) Swap Future
Iron Ore 62% Fe, CFR China (Platts) Swap Future CME Group provides novation to clearing of OTC swaps via CME ClearPort Product Symbol PIO Service Description Clearing of Iron Ore 62% Fe, CFR China Port (Platts) Swap Futures Venue CME ClearPort Contract Size 1,000 Dry Metric Tons CME ClearPort is ava
Slide 39: Iron Ore Swap Futures Final Settlement Price Calculation
Iron Ore Swap Futures Final Settlement Price Calculation Financially settled on the monthly average of the daily Platts 62% fe CFR China price • Platts assesses physical market activity on daily basis • Physical trades remains the basis for final swap futures settlement price • Pricing normalization
Slide 40: Conclusion
Conclusion New pricing paradigm will require changes to how steel industry manages price Past Present Consequence • Tied into long term supply with fixed • Market based pricing terms • Increased short dated price Iron Ore prices and predictable volumes • Demand – supply determines volatility Miners
Slide 41: Questions?
Questions? Follow up: For more information on Platts price assessments: www.steeldaily.platts.com Joe Innace 212.904-3484 joseph_Innace@platts.com For more information on CME Group metals contracts: www.cmegroup.com/metals For CME Group Iron ore: www.cmegroup.com/ironore New York Metal Product Sales
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