IDE U ARGUS PHOSPHATES Contents: Methodology overview 2 Publication frequency 5 General methodology 5 Assessing price ranges 5 Spot, contract and formula pricing 6 Terms 6 Units 6 Lot and cargo sizes 6 Products and specifications 6 Markets covered 7 Raw material contracts 9 AND SPECIFICATIONS G AND SPECIFICATIONS Ammonia and sulphur import costs 10 Relative nutrient values 10 Y Argus DAP index 11 Freight 11 OG L ETHODO LAST UPDATED: MAY 2021 The most up-to-date Argus Phosphates methodology is available on www.argusmedia.com M www.argusmedia.com 19 January 2005 METHODOLOGY AND SPECIFICatIONS GUIDE May 2021 Methodology overview • Transactions • Bids and offers Methodology rationale • Other market information, to include spread values between Argus strives to construct methodologies that reflect the way the grades, locations, timings, and many other data. market trades. Argus aims to produce price assessments which are reliable indicators of commodity market values and are free from In many markets, the relevant methodology will assign a relatively distortion. As a result, the specific currencies, volume units, higher importance to transactions over bids and offers, and a locations and other particulars of an assessment are determined by relatively higher importance to bids and offers over other market industry conventions. information. Certain markets however will exist for which such a hierarchy would produce unreliable and non-representative price In the phosphates markets, Argus publishes prices as laid out in the assessments, and so the methodology must assign a different specifications and methodology guide. Argus uses the trading relative importance in order to ensure the quality and integrity of the period deemed by Argus to be most appropriate, in consultation price assessment. And even in markets for which the hierarchy with industry, to capture market liquidity. normally applies, certain market situations will at times emerge for which the strict hierarchy would produce non-representative prices, In order to be included in the assessment process, deals must meet requiring Argus to adapt in order to publish representative prices. the minimum volume, delivery, timing and specification require- ments in our methodology. In illiquid markets, Argus assesses the Verification of transaction data range within which product could have traded by applying a strict Reporters carefully analyse all data submitted to the price assess- process outlined later in this methodology. ment process. These data include transactions, bids, offers, volumes, counterparties, specifications and any other information Survey process that contributes materially to the determination of price. This high Argus price assessments are informed by information received from level of care described applies regardless of the methodology a wide cross section of market participants, including producers, employed. Specific to transactions, bids, and offers, reporters seek consumers and intermediaries. Argus reporters engage with the to verify the price, the volume, the specifications, location basis, and industry by proactively polling participants for market data. Argus counterparty. In some transactional average methodologies, will contact and accept market data from all credible market reporters also examine the full array of transactions to match sources including front and back office of market participants and counterparties and arrive at a list of unique transactions. In some brokers. Argus will also receive market data from electronic trading transactional average methodologies, full details of the transactions platforms and directly from the back offices of market participants. verified are published electronically and are accessible to subscrib- Argus will accept market data by telephone, instant messenger, ers. The deals are also published in the daily report. email or other means. Several tests are applied by reporters in all markets to transactional Argus encourages all sources of market data to submit all market data to determine if it should be subjected to further scrutiny. If a data to which they are a party that falls within the Argus stated transaction has been identified as failing such a test, it will receive methodological criteria for the relevant assessment. Argus encour- further scrutiny. For assessments used to settle derivatives and for ages all sources of market data to submit transaction data from many other assessments, Argus has established internal proce- back office functions. dures that involve escalation of inquiry within the source’s company and escalating review within Argus management. Should this Throughout all markets, Argus is constantly seeking to increase the process determine that a transaction should be excluded from the number of companies willing to provide market data. Reporters are price assessment process, the supervising editor will initiate mentored and held accountable for expanding their pool of approval and, if necessary, documentation procedures. contacts. The number of entities providing market data can vary significantly from week to week based on market conditions. Primary tests applied by reporters • Transactions not transacted at arm’s length, including deals For certain price assessments identified by local management, if more between related parties or affiliates. than 50pc of the market data involved in arriving at a price assessment • Transaction prices that deviate significantly from the mean of is sourced from a single party the supervising editor will engage in an all transactions submitted for that week. analysis of the market data with the primary reporter to ensure that the • Transaction prices that fall outside of the generally observed quality and integrity of the assessment has not been affected. lows and highs that operated throughout the trading week. • Transactions that are suspected to be a leg of another transac- Market data usage tion or in some way contingent on an unknown transaction. In each market, Argus uses the methodological approach deemed • Single deal volumes that significantly exceed the typical to be the most reliable and representative for that market. Argus transaction volume for that market. will utilise various types of market data in its methodologies, to • Transaction details that are identified by other market include: participants as being for any reason potentially anomalous and perceived by Argus to be as such. 2 www.argusmedia.com 19 January 2005 METHODOLOGY AND SPECIFICatIONS GUIDE May 2021 • Transaction details that are reported by one counterparty metrics mirror the process used by physical commodity traders to differently than the other counterparty. internally assess value prior to entering the market with a bid or • Any transaction details that appear to the reporter to be offer. Applying these valuation metrics along with sound judgment illogical or to stray from the norms of trading behaviour. This significantly narrows the band within which a commodity can be could include but is not limited to divergent specifications, assessed, and greatly increases the accuracy and consistency of unusual delivery location and counterparties not typically the price series. The application of judgment is conducted jointly seen. with the supervising editor, in order to be sure that guidelines below • Transactions that involve the same counterparties, the same are being followed. Valuation metrics include the following: price and delivery dates are checked to see that they are separate deals and not one deal duplicated in Argus records. Relative value transactions Frequently transactions occur which instead of being an outright Secondary tests applied by editors for transactions purchase or sale of a single commodity, are instead exchanges of identified for further scrutiny commodities. Such transactions allow reporters to value less liquid markets against more liquid ones and establish a strong basis for Transaction tests the exercise of judgment. • The impact of linkage of the deal to possible other transac- tions such as contingent legs, exchanges, options, swaps, or • Exchange one commodity for a different commodity in the other derivative instruments. This will include a review of same market at a negotiated value. transactions in markets that the reporter may not be covering. • Exchange delivery dates for the same commodity at a • The nature of disagreement between counterparties on negotiated value. transactional details. • Exchange a commodity in one location for the same com- • The possibility that a deal is directly linked to an offsetting modity at another location at a negotiated value. transaction that is not publicly known, for example a “wash trade” which has the purpose of influencing the published Bids and offers price. If a sufficient number of bids and offers populate the market, then • The impact of non-market factors on price or volume, the highest bid and the lowest offer can be assumed to define the including distressed delivery, credit issues, scheduling issues, boundaries between which a deal could be transacted. demurrage, or containment. Comparative metrics Source tests The relative values between compared commodities are readily • The credibility of the explanation provided for the outlying discussed in the market and can be discovered through dialogue nature of the transaction. with market participants. These discussions are the precursor to • The track record of the source. Sources will be deemed more negotiation and conclusion of transactions.