Platts IODEX, premiums, and how iron ore is actually priced

Iron ore does not trade at one price. It trades at a benchmark plus a stack of adjustments, settled cargo by cargo. Understanding the stack explains why two ships leaving the same week can fetch very different numbers, and why a clean concentrate is worth more than its tonnage suggests.

Newcomers often ask for the price of iron ore as though there were one. There is not. There is a benchmark that is genuinely a single number, and then a set of adjustments that pull each cargo away from it in both directions. The skill is not memorizing a price. It is understanding the layers, because the layers are where quality, location, and terms turn into money. What follows is the anatomy of that adjustment, layer by layer.

The 62 percent benchmark The reference point most of the market uses is a 62 percent iron fines index, published daily by price reporting agencies. The best known is the Platts IODEX. Assessors survey deals, bids, and offers for a standard 62 percent product delivered to China and publish a single dollar-per-dry-metric-ton figure. That number is the base. Contracts around the world are written as the index plus or minus a differential. This note explains the structure, not where the index will go. It makes no forward price prediction.

Why the market settled on an index Iron ore once sold on annual benchmark prices negotiated between a few large miners and steelmakers. That system strained when demand became volatile, and the market moved to index-linked, shorter-term pricing over the last two decades. The daily index gave both sides a transparent reference they did not have to negotiate from scratch. It also made differentials, the premiums and discounts described here, explicit rather than buried in a single yearly figure. Reading a modern contract means reading the index and the differentials together.

Grade premiums stack above the base The first adjustment is grade. Iron above 62 percent earns a premium per unit, iron below it a discount. The premium is not fixed. It widens when mills are pushing for productivity and want more metal per ton, and it narrows when margins are thin. A product in the high sixties sits several iron units above the base, so the grade premium alone is a meaningful spread over the headline number.

Why low impurity earns its own spread Grade is not the only premium. Buyers pay separately for cleanliness. Low silica, low alumina, and low phosphorus reduce slag, energy, and processing steps, as the spec sheet shows. Price reporting agencies publish separate low-alumina and concentrate-related differentials because the market values the property distinctly. A concentrate can therefore collect two premiums at once, one for iron content and one for low impurities. That layered spread is the reason concentrate producers watch impurity assays as closely as iron.

FOB versus CFR Price is quoted on delivery terms, and the two that matter are FOB and CFR. FOB, free on board, is the price at the loading port. The buyer arranges and pays for the ocean freight from there. CFR, cost and freight, is the price delivered to the discharge port, freight included. The gap between an FOB and a CFR quote is the ocean freight for that route. A benchmark quoted CFR China already contains freight from the seller's coast. Comparing offers means knowing which term each uses.

Freight as a live variable Ocean freight is not a constant. It rises and falls with vessel supply, fuel prices, and route demand, and it can swing enough to change which supplier is cheapest delivered. This is where distance to market becomes a price factor rather than a footnote. An ore that starts closer to the buyer carries a smaller freight number into the CFR price. The mineral can be identical, but the delivered cost differs by the length of the voyage.

Fines, lump, and product form The index most people quote is for fines, the fine-grained product that must be sintered before it enters a blast furnace. Other forms price differently. Lump ore can charge directly and often carries a premium for saving the sintering step. Pellets, made from concentrate, carry their own premium reflecting the processing already done. So the headline fines index is a reference point, not a universal price. A concentrate or pellet product is compared to the index and then adjusted for its form as well as its grade. Knowing which product a quote describes is as important as knowing the number.

Contracts, spot, and who bears the swing Iron ore moves on a mix of longer-term contracts and spot cargoes, and both usually reference the index rather than a fixed price. That structure decides who carries market swings. Index-linked pricing means the flat-price exposure sits largely with whoever is tied to the benchmark, while the negotiated differentials, the grade and impurity spreads, are the part a producer can influence through the quality of its product. A producer cannot control the benchmark. It can control how far above the benchmark its material sits, which is the entire commercial argument for chasing grade and cleanliness.

Putting the stack together A delivered price is built in layers. Start at the 62 percent index. Add the grade premium for iron above the base. Add the low-impurity differential. Adjust for FOB or CFR by adding or removing freight. What remains is the number a mill actually pays. None of these layers is a forecast. They are the accounting of a single cargo. The value of a high-grade, low-impurity, well-located product is simply that it does well on several layers of the stack at the same time.