Chinese doubt follows raids connected to alleged manipulation of oil markets
Concerns about the accuracy of benchmarks published by price reporting agencies (PRAs) has spread to the iron ore markets with Chinese steelmakers questioning the reliability of indices from Platts.
The China Iron & Steel Association and one of its largest members, Jiangsu Shagang, believe benchmark numbers may be unreliable because they are based on a small number of transactions.
“We are sceptical because we don’t know the size of the deal samples and how they work out the indexed prices,” Wang Liqun, deputy general secretary of the China Iron & Steel Association, said in a phone interview with Bloomberg news agency. “If the daily price is based only on one deal a day, can you trust it?”
Platts has recently been raided alongside BP and Shell by the European Commission as part of an investigation into alleged manipulation of the oil markets. The Financial Conduct Authority in London is also reviewing similar concerns raised about the gas sector amid wider fears about the methodology used by PRAs to assess prices.
“We found the indexes often dropped slower when the (iron ore) spot market falls, while it always rises quicker when the spot rates move up,” Shen Wenming, vice president of Jiangsu Shagang Group, said in another interview with Bloomberg. “Indexed pricing dominates the market. Steelmakers don’t have a say but to follow.”
The price of iron ore was for decades set through annual negotiations behind-closed-doors between the large iron ore producers, such as BHP Billiton, Vale and Rio Tinto, plus the large Japanese and Chinese steel makers.
But the mining companies have since 2010 been increasingly successful pushing for big contracts to be linked to spot market rates set via benchmarks provided by Platts, an arm of US-based publisher, McGraw Hill, or rivals such as British-based Metal Bulletin. New Asian price reporting agencies have also been established including one run by China Beijing International Mining Exchange and Singapore’s GlobalORE.
One mining company said Platts and others had brought a lot more transparency to the iron ore market although it recognised that the prices would have stronger credibility if they were based on a wider number of transactions. Some buyers and sellers currently do not cooperate with the PRAs and choose to keep their deals confidential.
A spokeswoman for Platts said: “The quality of the information we obtain is key and we have emphasised transactions, bids and offers that are verifiable, transparent and firm.”