Fastmarkets clarifies manganese ore index methodology, to implement base brand adjustment on Nov 1: pricing notice

Fastmarkets will adjust the base brands of its MB-MNO-0001 manganese ore high grade index, cif Tianjin, and its MB-MNO-0005 manganese ore high grade port index, fot Tianjin, on Saturday November 1, to better reflect the bulk of ore traded in today’s market and is clarifying how the index is formed.

Fastmarkets’ MB-MNO-0001 manganese ore high grade index tracks the spot prices of high-grade manganese ore in the CIF China market, with manganese content and other chemical specifications set to match the prevailing brands.

Fastmarkets’ MB-MNO-0005 manganese ore high grade port index tracks the spot prices of high-grade manganese ore in the FOT China market, with manganese content and other chemical specifications set to match the prevailing brands.

After a period of observation of spot market trends and developments, Fastmarkets has gathered sufficient data and background to recalibrate the base brands to reflect the higher liquidity and diversity of material in these markets.

This adjustment will be kept within the current parameters of the methodology, using the same chemical specifications, to maintain stability of the indices.

This adjustment in base brands will start to be applied on November 1.

Clarification of manganese ore index
Fastmarkets is also clarifying the normalization process of the manganese ore index methodology, and elaborating on the process of brand adjustment and chemistry adjustment coefficient components.

Some products or brands traded on the manganese ore spot market differ from the base specification of the indices. Their price data requires normalization to determine the equivalent price for the respective index base specification.

Two groups of factors can determine product or brand price differences: chemistry factors and soft factors. Soft factors include supply consistency, brand trust and other market-perceived qualities.

To normalize for both types of factors, Fastmarkets’ normalization calculation has two steps or components: step one is a brand adjustment (coefficients) component and step two, a chemistry adjustment (coefficients) component. Our methodology has always consisted of these two steps.

Step one: Using regression analysis, the brand adjustment (coefficients) step normalizes price inputs referring to different brands to one or more base brands that are liquid, consistent, and similar in specifications to Fastmarkets’ index. Base brands are those to which our index is most closely aligned. Base brands are actively traded products considered most representative of the overall market. Selection is based on consistent liquidity, positioning near the middle of the prevailing price range and frequency of quotation by market participants. Aligning to a base brand or brands ensures that both observable specifications and softer, less tangible factors inherent to all products are captured in the index. All other brands are therefore normalized to a base brand or brands.

Step two: If the selected base brand(s) do not fully align with the base chemistry specification of the index, additional chemistry normalization is applied using a pro-rata or value-in-use (VIU) adjustment (coefficients). The chemistry adjustment component applies a pro-rata or a VIU calculation using the manganese content to bring the price numbers attained after step one to an equivalent of the manganese content of Fastmarkets’ index.

FOT (free on truck) Chinese ports data will not be used in the CIF or FOB indices.

Specification payment terms are based on typical commercial practice in the manganese ore spot market. Transactions that are conducted on different payment or credit terms are normalized where possible, taking into account discounts, interest rates and standard commercial terms.

Disclaimer: Fastmarkets does not endorse or vet base brands as superior to others. They are used solely as representative anchors for normalization purposes. Fastmarkets reserves the right to amend the base brand(s) and index specifications in response to fundamental changes in products and market behavior.

Fastmarkets specifications define only chemical and physical properties. Soft factors and base brands are not disclosed.

Normalization is conducted using in-house models based on regression analysis of collected data points. Coefficients are updated monthly to remain aligned with current market dynamics. Base brands will be updated on an ad-hoc basis based on changes in market fundamentals. The market will be informed in advance. Where necessary, adjustments are also made to reflect differences in freight, payment terms, moisture, port of delivery, or other commercial variables, using market-surveyed data and typical commercial practice.

To provide feedback on this decision on the manganese ore high grade indices, please send feedback to ores_alloys@fastmarkets.com and pricing@fastmarkets.com. Please add the subject heading “FAO: Paul Lim/Janie Davies, re: manganese ore high grade indices.”

Please indicate if comments are confidential. Fastmarkets will consider all comments received and will make comments not marked as confidential available upon request.

To see all Fastmarkets pricing methodology and specification documents, go to the Fastmarkets methodology page.