Netbacks based on spot Tubarao, Brazil-Qingdao, China, reference Capesize rates -- which averaged $24.61/wet mt for October -- continued to yield a lower free-on-board iron ore price in Brazil and Atlantic ports, compared with fixed freight and bunker fuel oil price adjustment formulas, according to an analysis by S&P Global Commodity Insights Nov. 2. The Brazil netback has been adopted as an Atlantic industry pricing reference, given the bulk of iron ore shipped volumes in the region are from Brazil.
The difference between the two netback pricing systems doubled to $10.53/wmt in October, from $5.89/wmt in September. The difference averaged at $5.26/wmt in Q3, according to S&P Global estimates.
The relatively higher FOB price under the freight formula in October may reduce some demand for iron ore products basis fixed freight netback pricing terms, unless this is compensated. For example, offering discounts to realized pricing, or lowering premiums. Buyers may prefer to lift off contracts and offers using the spot freight, as the gap widened.
