December quarter export prices are out and fared better than I thought they would. Down just 1.5%. This is a bit surprising because iron ore and coal make 50% of exports and both fell significantly.
First an iron ore price chart:
That’s a big fall, confirmed this week by Fortescue Metals, whose average spot price sold for ore got hammered in the last quarter from above $160 to $122.
Next, coking coal and thermal:
Some of the lack of transmission to export prices can be explained by a weaker dollar, but nowhere near all. In the index prices released today, ore prices were only down 4.5% and coal went up.
There are two explanations. This index prices are weighted for volume changes. The weights are calculated annually. The most recent reweighting was September quarter so where still working with a relatively fresh weighting mechanism for the growing volumes of iron ore exports, which will boost index prices.
But the central explanation has to be that the quarterly contract pricing mechanism that is functioning for both commodities has held the prices up because they are based upon averages for the previous three months, especially since the Fortescue update clearly shows spot price carnage.
That leads me to two conclusions. One, that the first quarter of this year will see much larger falls in the export prices. And two, the major ore producers are not selling much product on spot markets. Certainly nowhere near as high a volumes as is rumoured.
The vast bulk of shipments must be going out on quarterly contracts.
