TSI Market Watch: Asian Benchmarks. 2015 has been a dismal year to date for the ferrous industry in Asia. A brief look at TSI's key benchmarks in the region: 62% iron ore, Premium Hard coking coal (FOB Australia and CFR China) and ASEAN HRC: the bellweather index for Asian steel 'health' and a direct proxy for Chinese FOB prices.

1. © Copyright The Steel Index 2015 /1
TSI Market Watch: Asian Benchmarks July 23, 2015
Raw Materials Swoon as Steel Passes Out: trough worse than GFC nadir.
Executive Summary
 Iron ore sees price collapse and recovery.
 Coking coal market deterioration continues, again.
 Chinese steel demand falters and exports provide no relief.
 Derivatives market volumes soar as market races to cover.
TSI’s Asian Benchmark Prices
TSI Asian
Benchmarks
Price at
22/7/15
All-time
High
All-time
Low
2013
average
2014
average
2015 TD
average
TSI 62% Fe
(US$/dry tonne) $50.7 $191.9 $44.1 $135.18 $96.67 $59.08
TSI FOB Coking
Coal (US$/t) $85.2 $172.0 $83.2 $142.95 $116.55 $98.02
TSI CFR Coking
Coal (US$/t) $89.1 $186.5 $88.7 $160.55 $122.23 $102.29
TSI ASEAN HRC
(US$/t) $316 $758 $316 $578.19 $532.87 $386.20
 Rather than ‘pockets of strength’, 2015 has seen only areas of reduced weakness, to date.
Benchmark Prices Beaten Back
Whilst ore’s fall has been deeper than that of coking coal, the acceleration in the
deterioration of the finished steel price over 2015 has been more alarming.
Background Indicators
2013
average
2014
average
2015 TD
average
Inputs to ASEAN Margin* $275.2 $312.2 $236.8
CISA average mill profit 0.26% 0.85% ?
*Implied conversion margins of iron ore and CFR coking coal prices to
ASEAN-delivered transaction prices. No OPEX or costs other than raw
materials are considered
350
400
450
500
550
600
50
60
70
80
90
100
110
120
130
140
150
2013 2014 2015 TD
ASEAN RHS Ore CFR Coal

2. © Copyright The Steel Index 2015 /2
Iron Ore Prices Astound – To The Downside
Volatility is alive and kicking for iron ore markets. The 8th
of July saw the biggest one day
percentage fall since TSI began compiling the index as TSI’s benchmark 62% Fe fines index
collapsed -11.3%. Panic selling was in full swing amid chaotic Chinese equities markets, a looming
threat of a “Grexit”in Europe and on-shore iron ore futures markets hitting ‘limit down’ buffers for
three consecutive sessions. The alarming macro backdrop precipitated the setting of an all-time
low of US$44.10/dry tonne for benchmark 62% iron ore being set.
The key driver for the fall, which the above only served to exacerbate, was primarily plunging
finished steel prices. 85% of Chinese mills were reportedly losing money in June, with mills pouring
close to US$30/t of losses for every tonne produced. This is typically a seasonally weak period,
though the softness of this year proved a surprise, nevertheless. Mills often reduce production to
offset demand weakness, which in turn lowers the overall appetite for iron ore imports.
However, nor has volatility been all one-way. Prices are now back over the fifty dollar mark
(US$50.7/dmt as of July 22nd
), although it is notable that this is not the first time this year that
prices have dipped below US$50/dmt. The first and second halves of the year look like different
animals. As 2015 got underway, prices were over US$70/dmt.
Given the levels of volatility seen, it is unsurprising that the financial derivatives markets for iron
ore – both within and outside of China – have been soaring. Volumes of swaps, options and
futures cleared against the TSI 62% Fe iron ore benchmark have been skyrocketing, with a blow-
out 15.7 million tonnes cleared by SGX on the 8th
of July: 71% higher than its previous one-day
record, which was, in fact, only the day before. The first six days of July alone had seen volumes
equal to the average of total monthly volumes in 2014.
Iron ore treads a rocky road
A roller-coaster ride for iron ore prices – with 2015 being particularly ‘white knuckle’.
The white (red?) knight of 2008 (Chinese government stimulus) is not expected to
come back, this time.
Sources: China customs
40
60
80
100
120
140
160
180
200
There and back again: a miner’s tale
TSI 62% Fe fines, CFR Tianjin

3. © Copyright The Steel Index 2015 /3
Interestingly, during that period, at least one miner has made public its hedging strategy, which is
a ‘stop-loss’ focused on options. Will the ‘shareholders hold our equities as an unhedged play on
commodity prices’ mantra of producers continue to exercise the same fascination as the
commodity boom fades?
Persistence of Coking Coal Weakness Is Stubborn
The metallurgical coal market has been on a relentless downward grind (with occasional reversals)
since TSI began tracking it. The China-delivered daily spot price is now within forty cents of its all-
time low (US$88.7/t) set in May.
Multiple rounds of cost-cutting by miners have seen per tonne costs successively reduced time
and again, only for transaction prices to fall each time. Nor has respite been given by the
Australian currency weakening against the US dollar. Again, buyers have clawed the currency
‘advantage’ back each time.
The sustained nature of price weakness has encouraged a number of Australian miners to make
production cuts, with Anglo American, Peabody, Xstrata and Teck all making announcements to
that effect, in the run up to the most recent quarterly negotiation.
Australian output pullbacks have happened in a market in which Australian miners were expecting
to take market share from American producers. Instead, they remained surprisingly resilient, at
least until recently.
Ore derivatives growth continues
The 2015 average monthly volumes at SGX are over 70 million tonnes per month,
reaching for 90 million tonnes. July could be the first month of over 100 million tonnes
of trade: given the point it had reached by the 21st (below, July to-date).
Open Interest continues to soar.
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
90,000,000
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15TD
Swaps Options Swap Futures Option Futures
SGX Volumes Rampant

4. © Copyright The Steel Index 2015 /4
It isn’t only the price which has been shrinking, of course. The Chinese import market itself has
been on a sustained negative trajectory for some time, as demand fades year-on-year-on-year and
overcapacity crimps prices.
Indeed, so deep has China’s demand pullback been that it has not been Australia’s ‘number 1’
customer for coking coal for any month since November 2014. Instead, it has languished in third
place behind India and Japan each month bar May 2015, when it reclaimed the number two spot
by pipping India to the tune of 200,000 tonnes.
No end to the pain…
Each coking coal price rally has seemingly been followed by successively new troughs.
China-delivered coking coal has, like iron ore, seen sellers wincing not once, but twice
in 2015. The US$90/t delivered mark has been broached twice so far this year.
85
105
125
145
165
185
Not ‘black gold’, it seems
TSI Premium JM25 Chinese Imports
The incredible shrinking market
Total Chinese imports of metallurgical coal were already retreating in 2014, though this
year has seen it turn into something of a rout.
1,500,000
2,500,000
3,500,000
4,500,000
5,500,000
6,500,000
7,500,000
January February March April May
2013 2014 2015

5. © Copyright The Steel Index 2015 /5
Those tonnes have had to go elsewhere - primarily to FOB buyers. This resulted in a predictably
sapping effect on prices. The deviation from quarterly settled prices came faster this time than
previously, with spot prices slumping US$9.80/tonne away from the benchmark within nine
working days of contract prices being implemented. With steelmakers’ continued focus on costs,
can this system last much longer given the disparity between spot and benchmark prices?
Index usage has increasingly been focused on TSI’s FOB Australia index for non-China markets. It
has been reported to TSI that material from the world’s top three seaborne miners has been
linked to the index and sources put more than 80% of index-linked FOB tonnage being signed
during 2015 having a link to the TSI benchmark. The pool of data providers contributing to the
index has continued to deepen as steel mills, miners and traders with exposure to the index sign
up to record spot transactions anonymously.
For the period up to July 21st
, inbound data of individual transactions submitted have increased by
almost 40% year-on-year.
At the same time, overall volumes submitted to-date have swelled by 36%. TSI used the tonnages
of each cargo, as well as the price achieved to produce a daily volume-weighted average price.
Well over 600 corporations take part in TSI’s indices. For background on the methodology
employed to produce our indices from inbound transaction data, a short video is available here.
Strain evident in ‘quarterly’ system
US$/t prices for spot FOB Australia material have been heavily pressured, falling away
from negotiated settlements quickly and hard, again and again.
-18
-16
-14
-12
-10
-8
-6
-4
-2
0
80
85
90
95
100
105
110
115
120
125
130
Spot Deviation (RHS) TSI Spot PHCC FOB Quarterly Benchmark

6. © Copyright The Steel Index 2015 /6
For those wishing to hedge exposure, derivatives volumes of CME & SGX combined have increased
by 26% year-on-year over H1 period.
However, as the graph above shows, there is significant basis-risk involved for companies using
different underliers to procure and hedge coking coal price risk, which could prove challenging to
hedge effectiveness and the sustained growth of volumes.
FOB liquidity growth continues
Transactions reported to July 21st have grown 39% year-on-year, whilst volumes have
increased by 36%.
Deals reported
2014 2015
Volume reported
2014 2015
Scales have been removed to protect the anonymity of the data provider pool.
Basis risk is very real
There is real interest in seeing a liquid derivatives market for companies to offset their
coking coal price risk. For entities transacting on an FOB basis the US$/t differential
between the CME and SGX underliers is significant, and volatile.
-4
-2
0
2
4
6
8
SGX FOB underlier Premium/Discount to CME underlier

7. © Copyright The Steel Index 2015 /7
Asian Steel Markets Falter
TSI’s CFR ASEAN HRC index is an almost perfect proxy (with a correlation of over 99%) for FOB
China HRC prices (unsurprisingly, given that its basis is Chinese-origin SAE1006). It demonstrates
perfectly a prime reason for the swoon in raw materials: plummeting steel prices.
The days of ‘cost-push’ seem remarkably distant. Conversely any ‘demand-pull’ story has been
overwhelmed by supply-growth of finished steel. At the same time, real demand is waning as
construction markets in China remain weak and even hot-spots like Vietnam show signs of cooling.
However, Asia is more than China alone – particularly when it comes to steel production. With
ASEAN being a net importer, producers and traders from around the region deliver steel into
ASEAN, making the index a very usable tool for steel originating from numerous countries.
ASEAN HRC prices overwhelmed
The moves in ASEAN HRC pricing have been sharply downhill since H2, 2014 –
mirroring the increase in Chinese export volumes. Flat product export volumes have
doubled since January 2013.
2
3
4
5
6
7
8
9
10
11
310
360
410
460
510
560
610
660
710
760
CFR ASEAN HRC US$/t Chinese Steel Exports mmt (RHS)
Normalisation values at April 6th, 2015
TSI employ the same methodology for the ASEAN CFR index as we do for all our other indices.
Registered data providers deliver price data to TSI and we normalise this
SS400 – SAE1006 US$8/t
Chinese Mill US$0/t
Chinese (Premium) Mill US$5/t
India US$5/t
S.Korea US$10/t
Taiwan US$10/t
Japan US$11/t
Vietnam US$0/t
Thailand US$8/t
Indonesia US$21/t
Grade variation is not fixed. So TSI adjust dynamically with the market.
Origin Premia are not fixed, so TSI adjust dynamically along with
the market.
TSI make adjustments based on the transactions and bid and
offer data reported into TSI, along with ongoing discussions with
both buy and sell sides as to the prevailing differentials for hot-
rolled coil from these origin points.
Controlled market prices do not conform to stated tariff barrier levels for a
number of reasons, including variable tariffs down the individual mill level,
rather than flat rates. TSI employs the following values to normalise back to a
non-controlled market basis.

8. © Copyright The Steel Index 2015 /8
Japanese, South Korean or Taiwanese vendors, for example, can link to the ASEAN HRC index,
applying their own premium to it (or those that TSI will shortly begin publishing). Chinese mills can
link directly to it, also.
Nevertheless, whichever origin the hot-rolled coil is coming from – it is achieving the lowest prices
seen since TSI began producing the index. Flows of steel within Asia are huge, but falling prices
prove an impediment to continual flow: something craved by producers. Fixed prices also create
problems for vendors, as in a falling environment, re-negotiations are common, as is the more
troublesome issue of reneging contracts.
It is perhaps that factor which is causing an increase in indexing interest within Asia for finished
steel products, as well as an increase in companies interested in using derivatives to manage that
risk.
Asia remains the only location to have a true regional ‘Virtual Steel Mill’ (or VSM) i.e. the ability to
hedge both raw materials and finished products, both onshore in China, and offshore at SGX. The
need to hedge margins is more acute than ever, but the VSM-aside, for companies involved in the
ferrous trade, TSI’s Asian benchmarks (iron ore, coking coal and ASEAN HRC) are increasingly
important indices to watch.

9. © Copyright The Steel Index 2015 /9
For further information
Please contact: Tim Hard (Singapore) Coking Coal and ASEAN hard@thesteelindex.com
Jing Zhi Ng (Singapore) Coking Coal jz.ng@thesteelindex.com
Terence Soh (Shanghai) ASEAN t.soh@thesteelindex.com
Oscar Tarneberg (Shanghai) Iron Ore o.tarneberg@thesteelindex.com
Note to Editors:
The Steel Index (TSI) is a leading specialist source of impartial steel, scrap, iron ore and coking coal price
information based on spot market transactions.
Transaction price data is submitted confidentially to TSI on-line by companies buying and selling a range of relevant
steel, iron ore, scrap, coking coal products. TSI’s index reference prices are then calculated using transparent and
verifiable procedures which are fully aligned with IOSCO principles.
TSI’s iron ore price indices are published daily at 19:00 Singapore/Shanghai time (11:00 GMT) and coking coal price
indices daily at 18:30 Singapore/Shanghai time (10:30 GMT). Steel prices for Northern Europe, Southern Europe and
US HRC are published daily at 14:00 UK time and for ASEAN HRC imports daily at 18:30 Singapore time. Scrap
prices for Turkish imports are published daily at 13:30 UK time. Weekly steel and scrap price indices are published
every Monday and Friday respectively, with each price representing the average transaction price for the previous
calendar week.
TSI’s indices are widely used by steel mills, miners, traders, distributors and manufacturing companies worldwide as
the basis for their physical pricing arrangements. TSI’s indices are also used as the industry standard in the
settlement of ferrous financial contracts.
Singapore Exchange (SGX), LCH.Clearnet (London), CME Group (Chicago), NASDAQ OMX Clearing (Oslo) and
Intercontinental Exchange (ICE) all use TSI’s iron ore index for settling their monthly cleared iron ore financial
contracts. SGX also uses TSI’s coking coal indices and hot rolled coil index for ASEAN imports to settle its coking
coal and Asian HRC steel futures and swap contracts respectively. In addition, TSI’s prices are used for the
settlement of European hot rolled coil steel contracts on LCH.Clearnet and CME Clearing Europe and for the
settlement of Turkish scrap imports contracts on LCH.Clearnet, CME Europe and Borsa Istanbul. In all cases,
settlement prices are the average of TSI’s reference prices published in the expiring month.
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