Iron Ore (62% Fe): The Steelmaking Benchmark

Key Takeaways

• Iron ore 62% Fe CFR China is the global steelmaking benchmark grade.
• The price is assessed by agencies like Platts (IODEX) and Fastmarkets (TSI).
• Futures on SGX and CME settle financially against the published index.
• China buys most seaborne iron ore, so its steel demand drives the price.

What Iron Ore 62% Fe Is

Iron ore is the rock from which iron, and then steel, is made. Ore grades vary by iron content, and the market settled on 62 percent iron (62% Fe) as the standard benchmark grade for pricing.

The benchmark price is quoted CFR China, meaning cost and freight to a Chinese port, because China imports the bulk of seaborne iron ore. Price-reporting agencies publish daily assessments, including the S&P Global Platts IODEX and the Fastmarkets TSI index. Exchanges such as the Singapore Exchange (SGX) and CME Group list futures that settle against these indices.

The Intuition

Steel runs the modern industrial economy, and iron ore is its largest raw input. So the iron ore price is really a bet on steel demand, which in turn tracks construction, infrastructure, and manufacturing, above all in China.

A single benchmark grade and delivery point lets a fragmented global trade price off one transparent number. Different ore grades and qualities then price as a premium or discount to the 62% Fe CFR China reference, the same way crude oil grades price off a benchmark like Brent.

How It Works

The benchmark is iron ore with 62 percent iron content, priced CFR China and quoted in US dollars per dry metric tonne. Agencies assess the spot price daily based on physical deals and bids. The Platts IODEX, for example, reflects a 62% Fe fines basis delivered to China.

benchmark grade: 62% Fe (iron content)
basis: CFR China (cost and freight to a Chinese port)
quotation: US$ per dry metric tonne
index providers: Platts (IODEX), Fastmarkets (TSI)
futures: SGX and CME, financially settled vs the index

The SGX and CME futures are cash-settled, not physically delivered. For recent contract months, settlement uses the average of the index assessments over the expiring month. Because settlement is financial and tied to a published number, traders, miners, and steel mills can hedge without moving physical ore. Higher-grade ore (for example 65% Fe) and lump or pellet products trade at premiums to the 62% benchmark.

Worked Example

Suppose the 62% Fe CFR China index sits at 100 dollars per tonne and a miner wants to lock in revenue on future shipments. The miner sells iron ore futures at 100.

If the index later settles at 90 over the expiring month, the physical ore the miner ships sells for less, but the short futures position gains about 10 dollars per tonne, offsetting the drop. If the index settles at 110, the physical sale earns more while the futures lose, again offsetting. The hedge stabilizes revenue around 100.

Now read the grade spread. If 65% Fe ore trades at 115 while 62% sits at 100, the 15-dollar premium reflects the value of higher iron content to a steel mill, since richer ore needs less processing. When steel margins are thin, mills sometimes shift toward cheaper lower-grade ore, narrowing that premium.

Common Mistakes

1. Ignoring the grade basis. The benchmark is 62% Fe. Higher or lower grades price at a premium or discount, and that spread shifts with steel margins.

2. Forgetting it is CFR China. The price includes freight to China. Freight rate swings move the delivered price even when the ore itself is unchanged.

3. Confusing the index with the futures. The spot index is a daily assessment, while the futures settle on a monthly average. They track but are not the same number.

4. Underweighting China. China dominates seaborne demand. A purely global view that downplays Chinese steel output misses the main driver.

5. Overlooking scrap and substitution. Electric-arc furnaces use scrap steel instead of iron ore. Rising scrap use can soften ore demand in ways an ore-only view misses.

Frequently Asked Questions

What is iron ore 62% Fe in simple terms? Iron ore 62% Fe is the benchmark grade for the rock used to make steel, priced for delivery to China. Agencies assess its daily price and exchanges list futures against it.

How does iron ore 62% Fe affect investment decisions? The price drives the earnings of miners and the costs of steelmakers, and it serves as a read on Chinese construction demand. Investors use the futures to hedge or to express a steel-demand view.

What is a real-world example of iron ore pricing? A miner can sell 62% Fe futures at 100 dollars per tonne to lock in revenue, so a later drop to 90 in the physical market is offset by a gain on the short futures.

How can investors account for iron ore price swings effectively? Track Chinese steel output, the grade spread between 62% and 65% Fe ore, and freight rates, since all three move the delivered benchmark price.

How is iron ore different from steel? Iron ore is the raw input priced CFR China at 62% Fe, while steel is the finished product whose price reflects ore costs plus processing, energy, and demand for finished goods.

Sources

1. CME Group. "Iron Ore 62% Fe CFR China (Platts) Futures Contract Specs." https://www.cmegroup.com/markets/metals/ferrous/iron-ore-62pct-fe-cfr-china-tsi-swap-futures.contractSpecs.html
2. Singapore Exchange (SGX). "Iron Ore Derivatives." https://www.sgx.com/derivatives/products/iron-ore
3. S&P Global Commodity Insights (Platts). "FAQ: Platts IODEX Quality Specifications." https://www.spglobal.com/content/dam/spglobal/ci/en/documents/platts/en/our-methodology/methodology-specifications/metals/supporting-materials/faq-platts-iodex-quality-specifications.pdf
4. Singapore Exchange (SGX). "iEdge SGX Iron Ore Futures Indices." https://www.sgx.com/indices/services/iron-ore

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.