globalore siota guide

SIOTA guide April 2015

1

Copyright © by globalORE 20142

• SIOTA structure 3

• Counterparty matches 6

• Executing trades─ Brands─ Quality─ Arrival periods and

Quotational periods─ Pricing and Fe adjustments─ Berth─ Quarterly trades

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• Executing post-trade─ Nominations─ Vessel substitution─ Change of discharge port

nomination─ Weighing, Sampling &

Analysis─ Off spec product─ Contaminated iron ore─ Payment─ laytime and

demurrage/despatch─ Port agent costs─ Force majeure─ Failure to make or take

delivery─ MNP─ Delivery in one shipment

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The SIOTA is comprised of three parts

4

Part 2Relevant Iron Ore Standard

Specifications (RIOSS)Transaction and

execution

• Signing page • Terms and conditions which apply to ALL globalORE trades

• Terms and conditions which apply depending on incoterm / market / iron ore product

• There are currently two RIOSS, one for CFR Qingdao Fines and one for CFR Qingdao Lump


Main operational provisions in Part 2 and RIOSS

5

Part 2 ClauseDefinitions 1

Vessel acceptance 6

Title and risk 7

Weighing, sampling and analysis 8

Quality and Contamination 9

Rejection 10

Payment 12

Remedies for failure to make or take delivery

13

Termination 14

FM 15

Disputes 16

Notices and communication 21

RIOSS ParagraphDefinitions Table provided at

the beginning of RIOSS

Obligations 1

Nominations, vessel substitution and discharge port substitution

2

Notifications by the Seller after loading 3

Counting of laytime and payment of demurrage or despatch

4

Unloading at the discharge port and payment of port agent fees

5

Price, Fe adjustments and freight differential adjustments

6

Discharge of shipment on receipt of indemnity

7

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You should only establish counterparty matches with counterparties with whom you want to trade

7

Counterparty match best practices

DO:

Align your counterparty matches with your company’s risk policy

Turn on market members who you know and have confidence will perform

Turn off a counterparty match if you become concerned about their ability to perform

DON’T:

Establish counterparty matches with counterparties you are unfamiliar with

Maintain a counterparty match with a counterparty if their circumstances change such that you might no longer want to trade with them

You should feel comfortable executing any tradable bid or offer if counterparty matches are well managed


You should use counterparty match system to replicate spot counter party selections

8

Scenario Action

You may have sold a lot of iron ore to one counter party and wants to diversify to sell to other market members

Switch off the one counterparty

Your risk management policy changes and you may only trade with counterparties with an AA credit rating

Switch on market members who have an AA credit rating and switch off market members who do not meet the minimum required credit rating

Your strategy may be to buy from more counterparties when prices are high and fewer counterparties when prices are low

Switch counterparties on and off according to strategy

Counterparty matches are not static. They can be switched on and off according to market circumstances, your risk management policy and strategy.


Six counterparty matches are required before you can trade

9

Example: You want to sell iron ore, June delivery basis at a fixed price

Activity Price Basis Tenor vaild

Sell Buy Fixed Index June

A 1 1 1 1 1

B 1 1 1 1 1

C 1 1 1 1 1

D 1 1 1 1 1

E 1 1 1 1 1

F 1 1 1 1 1

G 1 1 1 1 1

H 1 1 1 1 1

I 1 1 1 1 1

J 1 1 1 1 1

You must have six market members who:

You can sell to;

On a fixed price basis;

For delivery in June

In the scenario to the right you would be able to sell on the screen.

What if you wanted to buy a fixed price cargo in June?

1

2

3

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The following products can be traded on globalORE

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gO iron ore• Generic globalORE iron ore• Within specifications set out on globalORE’s website for 65 Fines, 63.5 Fines, 62 Fines, 58

LAPS Fines, 58 Fines, 64 Lump and 62.5 Lump

Branded products

Multi-brand products

• MNP – means the product may be either MAC fines, Newman Fines or Pilbara Blend Fines at the seller’s option

• NPL – means the product may be either Newman Blend Lump or Pilbara Blend Lump at the seller’s option

65% Fines• Carajas

Fines

58% Fines• Fortescue

Blend• Robe Valley

Fines• Super

Special Fines

62% Fines• MAC Fines• Newman

Fines• Pilbara

Blend Fines

58% LAPS Fines• HIY Fines• Yandi Fines

Brand

62.5% Lump• Newman

Blend Fines• Pilbara

Blend Fines


When entering orders market members can select RIOSS and brand

12

Brands on order screenRIOSS is displayed in rows

Brand


Specifications for fines April 2015

13

Dry Basis (%) CFR Qingdao 65 CFR Qingdao 63.5 CFR Qingdao 62 CFR Qingdao 58 LAPS

CFR Qingdao 58

RIOSS Headline Fe 65.00 63.50 62.00 58.00 58.00

Fe (max)2 66.50 65.00 63.50 60.50 60.50

Fe (min) 63.50 60.50 60.00 56.50 55.00

SiO2 (max) 4.00 8.50 6.50 6.50 12.00

Al2O3 (max) 2.00 3.50 3.00 1.80 3.50

Phosphorous (max) 0.06 0.10 0.13 0.06 0.10

Sulphur (max) 0.01 0.05 0.05 0.05 0.05

Moisture (max) 10.00 10.00 10.00 10.50 10.00

Sizing Max 24% >6.30mm max 25% <0.150mm

Max 35% >6.30mm, max 26% <0.150mm

Or

Max 18% >6.30mm, max 35% <0.150mm

Max 22% >6.30mm, max 45% <0.150mm

Or

Max 18% >6.30mm, max 35% <0.150mm

Max 18% >9.50mm, max 35% <0.150mm

Max 18% >9.50mm, max 35% <0.150mm

1. https://www.globalore.net/SIOTA/Specifications 2. No penalty for providing higher Fe. Seller will only be able to apply Fe adjustment up to the maximum Fe level

For the current specifications, please check the globalORE website1

Quality

https://www.globalore.net/SIOTA/Specifications


Specifications for lump April 2015

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Dry Basis (%) CFR Qingdao 64 CFR Qingdao 62.5RIOSS Headline Fe 64.00 62.50

Fe (max)2 66.00 63.50

Fe (min) 63.00 61.00

SiO2 (max) 6.50 4.50

Al2O3 (max) 2.00 2.00

Phosphorous (max) 0.08 0.10

Sulphur (max) 0.05 0.06

Moisture (max) 2.00 6.50

Sizing Max 10% >31.5mm， max 13.5% < 6.3mm Max 25% > 31.5mm, max 13.5% <6.30mm

Brands SL PBL, NBL, PNL

Draft - WIPQuality

1. https://www.globalore.net/SIOTA/Specifications 2. No penalty for providing higher Fe. Seller will only be able to apply Fe adjustment up to the maximum Fe level

For the current specifications, please check the globalORE website1

https://www.globalore.net/SIOTA/Specifications


Not Actual Quality – Specs can be narrowed or kept at the default

15

Order screen Trading screen

• Select Not Actual Quality• Default minimum Fe, maximum silica and

alumina levels will appear• Minimum Fe can be raised, maximum silica

and alumina can be lowered (take note of max Fe levels within each bucket)

• There will be a blank instead of an “A” next to the quantity which will indicate “Not Actual Quality”

• Hovering over the order with a mouse will show what the min Fe and max silica and alumina levels are. Default gO specifications will be displayed unless specs are narrowed.

Quality


Actual Quality – load port specs are known and are provided by Seller at the time of transaction

16

Order screen Trading screen

• Select Actual Quality• Update the Fe, Silica and Alumina to actual

levels• Ensure all specs conform to gO minimum specs

• An ‘A’ will appear next to the order to indicate “Actual Quality” option

• Hovering over the order with a mouse will show what the load port specifications for the shipment are.

Quality

1. SIOTA, Part 2, cl. 1, Actual Quality definition


There are three types of arrival periods

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• Whole calendar month

• First half of a calendar month (1st – 15th day of the month)

• Second half of a calendar month (16st – final day of the month)

Arrival Period

1. SIOTA, Part 2, cl. 1, Arrival Period definition


A range of quotational periods are provided for index-linked trades depending on arrival period

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Quotational period Arrival month delivery

Front-half delivery

Second-half delivery

• Arrival whole month (1st – last day) WM-AWM 1H-AWM 2H-AWM

• Arrival month first half (1st – 15th) WM-AM1H 1H-AM1H 1

• Arrival month, second half (16th – last day) WM-AM2H 1 2H-AM2H

• Prior whole month (1st – last day) WM-PWM 1H-PWM 1

• Prior month, second half (16th – last day) 1 1H-PM2H 1

• Following whole month (1st – last day) WM-FWM 1 1

Arrival Period / Quotational Period

1. https://www.globalore.net/SIOTA/Quotational

https://www.globalore.net/SIOTA/Quotational

https://www.globalore.net/SIOTA/Quotational


Arrival periods and quotational periods will be displayed on the trading screen

19

Fixed price Index-linked price

Enter arrival period on order screen

1H for first half, 2H for second half

Enter arrival period and quotational period on order screen

Arrival period and quotation period will appear together

Arrival Period


Seller must ensure that vessel either completes loading by final loading date or delivers by end of the arrival period1

20

Scenario 1

Vessel completed loading prior to final loading date

Vessel did not arrive before the end of the arrival period

Loading completed on 15 March

Arrival at Qingdao on 2 April

Scenario 2

Vessel did not complete loading by final loading date

Vessel arrived before the end of the arrival period2


Arrival at Qingdao on 30 March

Scenario 3



Seller did not substitute vessel for a vessel that meets obligations



Transaction termsOrigin of iron ore: AustraliaArrival period: March

Resulting datesEnd of arrival period: 31 MarchFinal loading date: 18 March

Seller met obligations


Seller did not meet obligations

1. SIOTA, RIOSS, p.1 2. Vessel can arrive before the arrival period starts. If buyer discharges early, seller only liable for despatch for laytime not used (see slide 41)

Arrival Period


Copyright © by globalORE2014

Seller must ensure that vessel either completes loading by final loading date or delivers by end of the arrival period1

17

3

Scenario 1

Vessel completed loading prior to final loading date




Scenario 2


Vessel arrived before the end of the arrival period2


Arrival at Qingdao on 30 March

Scenario 3



Seller did not substitute vessel for a vessel that meets obligations



Transaction termsOrigin of iron ore: AustraliaArrival period: March

Resulting datesEnd of arrival period: 31 MarchFinal loading date: 18 March

Delivery period



Seller did not meet obligations

1. SIOTA, RIOSS, p.1.2 2. Vessel can arrive before the arrival period starts. If buyer discharges early, seller only liable for despatch for laytime not used (see slide 41)

Buyer has three options if seller does not fulfil obligation

21

…Buyer has three options1

If seller does not meet timing obligations…

Treat seller as not making delivery (see failure to make or take delivery section)

Accept a replacement shipment to be delivered at a later period

Accept the shipment but on CQD basis (unload the ship as soon as practicable when it arrives without liability for demurrage)

Buyer must make election by notice in writing within 3 working days after the end of the delivery period. Otherwise, default is to accept the shipment on a CQD basis

1. SIOTA, RIOSS, p.1.2

Arrival Period


Final loading dates are based on typical voyage times

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Brazil – 40 days before end of Arrival period

Australia – 12 days before the end of Arrival Period

India – 19 days before the end of Arrival Period

Africa – 26 days before the end of Arrival Period

Philippines– 10 days before the end of Arrival Period

Number of days to count refers to the number of days in between Final Loading Date and final day of Arrival Period Example: If arrival period is September, final loading date for Brazil will be 20 August, Africa will be 3 September, India will be 10 September, Australia will be 17 September and Philippines will be 19 September

1. SIOTA, RIOSS, Definition of Final Loading Date

Arrival Period


There are three pricing options for fines

23

Fixed $/DMT Index-linked Discounted Index-linked

(for 58 bucket)

Description

• Participants agree a USD price per DMT for lump product

• $/DMT

• Participants agree a premium / discount to an index-linked fines price

• Index and quotational period agreed at the time of transaction

• Participants agree a premium / discount to an index-linked fines price AND a discount % to the index-linked price


Fe adjustment

• Default • Fixed $ per 1% Fe

• Straight line adjustment (default)

• Index-linked per 1% Fe differential

• Straight line

1 2

Pricing

1. SIOTA, RIOSS, Definition of Final Loading Date

3


Fixed price (fines)

24

Scenario: • Buyer and Seller enter into a CFR 65 RIOSS agreement• Agreed transaction price is $68/DMT• Actual Fe delivered is 64

Formula

Final price

Base price + (Actual Fe – RIOSS Fe) * Fe adjustment factor

Base price / RIOSS Fe * Actual Fe

68 =$66.80/DMT

Straight line adjustment

Fixed adjustment( Eg Parties elect per 1 % Fe differential

of $1.20)

* Previously Actual Quality was not subject to an Fe adjustment. Since the launch of SIOTA v3 Actual Quality trades are subject to an Fe adjustment

Actual quality and Not Actual quality*

1Pricing


Index-Linked Price (fines)

25

Scenario: • Buyer and Seller enter into a CFR 65 RIOSS agreement for Front half June delivery• Agreed transaction price is FH-PM2H MB 65 + 1 • MB 65 average price for 16-31 May is 63.5• Actual Fe delivered is 64

Formula

Final price

Base price + (Actual Fe – Index Fe) * Fe adjustment factor ± premium or discount

Base price / Index Fe * Actual Fe ± premium or discount

6+1 =$63.30

Straight line adjustmentIndex linked adjustment

( per 1% Fe for 16-31 May is $1.20)

* Previously Actual Quality was not subject to an Fe adjustment. Since the launch of SIOTA v3 Actual Quality trades are subject to an Fe adjustment

Actual quality and Not Actual quality*

2Pricing


FormulaUSD/DMT

Final price

Platts AustraliaNetbackIndex Fe

× (1−% discount )× Actual Fe+ Platts published freight(1−moisture)

± DMT premium /discount

Index-linked pricing

Scenario:• Parties agree to trade a 58 product at a discount to the Platts 62 Australia Netback index• Parties agree to a $1 premium above the Platts 62 Australia Netback• Quotational period is arrival month, average Platts 62 Australia Netback price for arrival month is

$70/DMT • Agreed discount is 15%• Actual Fe delivered is 58.5• Platts average Australia freight price is $10/wmt• Actual moisture is 8%

New discounted index pricing for Fines 58 (FOB)3


There are three pricing options for lump

27

Fixed $/DMT Index-linked fines plus fixed LP

Index-linked fine plus index-linked LP

Description

• Participants agree a USD price per DMT for lump product

• $/DMT

• Participants agree a fixed USD per dmtu lump premium over an index-linked fines price


• Participants agree a premium / discount to an index-linked fines price plus an index-linked lump premium


Price formulae

• Default • Fixed $ per 1% Fe

• FOB lump premium• CFR lump premium

• Default straight line Fe adjustment

• Index-linked per 1% Fe adjustment

• FOB lump premium• CFR lump premium

• Default straight line Fe adjustment

• Index-linked per 1% Fe adjustment

1 2 3

Pricing


Fixed $/DMT pricing (lump)

28

Scenario: • Buyer and Seller enter into a CFR 64 lump RIOSS agreement• Agreed transaction price is $65/DMT• Parties agree to fixed per 1% Fe differential of $2.00• Actual Fe delivered is 64.5

Formula

Final price

Straight line adjustment Fixed per 1% Fe adjustment

6564×64.5=$𝟔𝟓 .𝟓𝟏/𝐃𝐌𝐓

¿ Price+ (Actual Fe−RIOSS Fe )× ¿ per 1% Fedifferential

65+ (64.5−64 )×2=$𝟔𝟔 /𝐃𝐌𝐓

1Pricing


FormulaUSD/DMT

Final price

Scenario: • Buyer and Seller enter into a CFR 64 lump RIOSS agreement• Agreed lump premium is $0.2000/dmtu over the average of the Platts 62 index for the arrival month• Platts 62 index average for the arrival month is $65/DMT• Actual Fe delivered is 63• Index-Linked per 1% Fe differential is 1.15 (for 64 RIOSS agreement)

Lump premium over fines index – CFR (lump)

Straight line adjustmentIndex-Linked per 1% differential Fe

adjustment (64 RIOSS)

[( 6562 )+0.2000 ]×63=$𝟕𝟖 .𝟔𝟓/𝐃𝐌𝐓

[( Index Linked Fines PriceIndex Fines Fe )+¿ LP ]× (Actual Fe )

65+(63−62 )×1.15+0.2000×63=$𝟕𝟖 .𝟕𝟓 /𝐃𝐌𝐓

2Pricing


FormulaUSD/DMT

Final price

Scenario: • Buyer and Seller enter into a CFR 62.5 lump RIOSS agreement• Agreed lump premium is $0.2000/dmtu over the average of the Platts 62 index for the arrival month• Platts 62 index average for the arrival month is $65/DMT• Freight Index is $10/WMT• Actual Fe delivered is 63• Actual Moisture is 0.04• Index Moisture is 0.08

Lump premium over fines index – FOB (lump)

[( Index Linked Fines Price− Freight Index1−Index Fines Moisture

Index Fines Fe )+Lump Premium]× (Actual Fe )+ Freight Index(1− Actual Moisture )

[( 65− 101−0.0862 )+0.2000]× (63 )+ 10

(1−0.04 )=$𝟕𝟖 .𝟎𝟐/𝐃𝐌𝐓

2Pricing


FormulaUSD/DMT

Final price

Index-linked lump price CFR (lump)

Scenario: • Buyer and Seller enter into a CFR 64 lump RIOSS agreement• Agree to Platts 62 fines price plus Platts LP with a premium of $1/DMT• Platts 62 fines index average for the arrival month is $60/DMT• Platts 62 lump premium average is $0.2500/dmtu• Platts average Per 1% differential is 1.15/dmt (applicable to 64 RIOSS calculation)• Actual Fe is 63.5

[( 6062 )+0.2500 ]×63.5+1=$𝟕𝟖 .𝟑𝟑/𝐃𝐌𝐓

[( Index Linked Fines PriceIndex Fines Fe )+ Index Linked LP ]× (Actual Fe )+DMT Premium/Discount

6 0+(63.5−62 )×1.15+0.2500×63.5+1=$𝟕𝟖 .𝟔𝟎 /𝐃𝐌𝐓

Straight line adjustmentIndex-Linked per 1% differential Fe

adjustment (64 RIOSS)

3Pricing


FormulaUSD/DMT

Final price

Scenario: • Buyer and Seller enter into a CFR 62.5 lump RIOSS agreement and agree to pay $1/DMT premium• Index-Linked lump premium is $0.2500/dmtu• Platts 62 index average for the arrival month is $60/DMT• Freight Index is $5/WMT• Actual Fe delivered is 63.5• Index Lump Moisture is 0.04• Actual Lump Moisture is 0.045

Index-Linked Lump Price FOB (lump)

(( Index Linked Fines P riceIndex FinesFe+ Index Linked LumpPremium)∗ Index LumpFe − Freight Index

1−Index Lump M oistureIndex Lump Fe

)× ( Actual Fe )+ Freight Index(1− Actual Moisture)

± DMT Premium/Discount

(( 6062+0.25)∗62.5− 51−0.04

62.5)× (63.5 )+ 5

(1−0.045)+1=$𝟕𝟖 .𝟐𝟕/𝐃𝐌𝐓

3Pricing


CFR and FOB pricing will be selected on the order entry screen and displayed on each order

CFR/FOB pricing will be indicated for each

order

Field provided in order entry field

Pricing


MMs can select whether final price is based on Load Port or Discharge Port weight and sampling & analysis results

35

Order entry screen contains a field to select Load Port

Final or Discharge Port Final

An “L” will indicate Load Port Final

A “D” will indicate Discharge Port

Final

Pricing


Berth requirements

36

Three options for berth size The three options areDefault• Min, 18m draft• Length, <340m

>340m, draft min 18m • Discharge port and berth nominated by

buyer must accommodate VLOC on second disport

>340m, draft min 20m • Discharge port and berth nominated by

buyer must accommodate VLOC on first disport

1. SIOTA, Part 2, cl. 1, definition of “Berth”

Berth


Quarterly trades apply to every month of the quarter

37

Members can submit orders on screen for quarterly trades Rules for quarterly trades

The order will apply for every month in the quarter.

For example, in the table provided:• Buyer has placed a bid for 100KT in Q3’14

for $110/DMT

• Buyer is therefore seeking three deliveries of 100KT Quarter 3 2014 for $110/DMT

• Delivery periods for the three shipments will be

─ First delivery – July 2014─ Second delivery – August 2014─ Third delivery – September 2014

1. globalORE usage rules, schedule 2






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Seller nominations

39

Notice Information Timing

Paragraph 2.1

• Origin of each shipment and/or final loading date

• Brand of each shipment (if specified in transaction)

Is the timing of the transaction more than 20 days prior to the start of the arrival period?• Yes – provide notice no later than 20 days prior to

the start of the arrival period• No – provide notice within 24 hours of receiving

Buyer’s paragraph 2.4 notice

Paragraph 2.3

• Origin• Brand• Vessel details• ETA of vessel at load port• ETA of vessel at discharge port (if vessel has

already loaded)• Demurrage rates proposed by seller (to be

agreed by buyer)• If discharge port is outside PRC, the primary

laboratory and marine surveyor that seller intends to use

• Where the discharge port is within PRC, the load port laboratory for load port analysis

Is the timing of the transaction more than 12 days before the final loading date?• Yes – provide notice no later than 12 days before the

final loading date• No – provide notice withint 24 hours of receiving

Buyer’s paragraph 2.4 notice

1. SIOTA, RIOSS, p. 2.1, p. 2.2, p. 2.3


Buyer nominations

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Notice Information Timing

2.4 • Discharge port and terminal Is the timing of the transaction more than 3 days prior to the ETA of the vessel at the load port?• Yes – provide notice no later than 3 days prior to the

ETA of the vessel at the load port• No – provide notice within 24 hours of the

transaction

2.6 • Whether unloading to quayside / stockpile / buyer vessel (include details)

• Buyer’s agent at Discharge Port• If CFR China, the primary laboratory

Is the timing of the transaction more than 15 days prior to the ETA of the vessel at the load port??• Yes – provide notice no later than 15 days prior to

the ETA of the vessel at the load port• No – provide notice within 24 hours of the

transaction

1. SIOTA, RIOSS, p. 2.4, p. 2.5, p. 2.6


Example nomination timelines: July delivery period, early May transaction

Origin Notice timeline

Australia

Brazil

TransactionMay June July

Final loading

date

ETA at load port

12 days12 days

Final day for 2.3 notice

3 days


15 days



TransactionMay June July

Final loading

date

ETA at load port

50 days12 days


3 days


15 days



20 days

20 days

Start of arrival period

Buyer

Buyer

Seller

Seller Start of arrival period

Transaction date

Transaction date

Fixed dates Notice due dates

End of arrival period

End of arrival period


Sellers can substitute vessels up to 48 hours prior to end of Arrival period

42

Transaction terms Implications

Product

MNP Seller may change product provided it is Mac, Newman or PB and within spec up to 48 hours prior to arrival period

gO Seller may change product provided it is within specifications up to 48 hours prior to arrival period

Branded product Seller can still substitute the vessel but must deliver specified brand of product within specifications

Time of delivery Arrival period Substituted vessel must have loaded by the final loading date; OR

Must arrive within the arrival period

Seller is bound to deliver whatever was agreed at the time of transaction

1. SIOTA, RIOSS, p. 2.8


Changing discharge port nomination

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• Buyer may change discharge port nomination and the seller cannot unreasonably withhold consent provided:

Vessel owner agrees

Buyer agrees to pay the seller any additional cost incurred as a result of changing the discharge port

1. SIOTA, RIOSS, p. 2.7, p. 2.9


Treatment of disparities between load and discharge port

44

Weight Sampling & Analysis

Load Port Final • Final price based on load port • Final price based on load port results

Discharge Port Final

• If disparity between load port and discharge port results for weight are <0.5% then final price is based on discharge port

• If disparity between load port and discharge port results for weight are >0.5% then parties will negotiate an outcome. If the parties cannot agree within 14 days the average of the load port and the disport will apply

• If disparity between load port and discharge port results for Fe or moisture content are less than or equal to 0.5% then final price will be based on discharge port

• If disparity between load port and discharge port results for Fe or moisture content are greater than 0.5% but less than or equal to 1% then parties will negotiate an outcome. If the parties cannot agree within 14 days the average of the load port and the disport will apply

• If disparity between load port and discharge port results for Fe or moisture content are greater than 1% then parties may go to referee


What happens if minimum specs are not met?

45

First try to reach agreement…1 …if seller does not offer reasonable adjustment…

• Seller to offer a fair and reasonable adjustment to price within 3 working days of Buyer receiving load port analysis

• Seller to provide buyer with adjustments in line with other spot cargos being offered in the market2

• If seller hasn’t offered similar adjustments prevailing in the spot market, and the load port analysis certificate indicates the product is off spec, then Buyer can reject the shipment by written notice within 5 working days of receipt of the load port analysis3

• Buyer can only reject off spec ore provided it has not been mixed with other iron ore.4

• If some of the off spec ore has been mixed• Buyer can try to agree an adjusted price with

the seller for the mixed ore• Buyer can still reject the ore which has not

been mixed

• For combo cargos, Buyer cannot reject off-spec ore and demand the other ore. Buyer will have to reject the whole shipment5

1. SIOTA, Part 2, cl. 9.2 2. SIOTA, Part 2, cl. 9.3 3. SIOTA, Part 2, cl. 9.4 4. SIOTA, Part 2, cl. 9.4.1 5. SIOTA, Part 2, cl. 9.5


What happens if ore is contaminated?1

46

• Will NOT be entitled to reject shipment

• Will act in good faith and use reasonable endeavours to mitigate the costs of removing the contamination and repairing any damage caused to any iron ore conveyance or vessel

• Will reimburse the Buyer for all reasonably incurred expenses to render the ore contamination-free

• Will reimburse the Buyer for any damage caused by the contamination to any iron ore conveyance or vessel

Buyer Seller

1. SIOTA, Part 2, cl. 9.1 2. SIOTA, Part 2, cl. 7.4

Seller will only be responsible for contamination before risk of loss or damage passes to the buyer. Risk shall pass in accordance with the relevant incoterm.2

If ore is contaminated before risk of loss or damage passes to the buyer then:


Payment by letter of credit1

47

Letter of credit Provisional payments Final payment

Timing &

form

• Issued or confirmed by a first-class international bank acceptable to the seller four working days after the

nomination of the vessel by the seller or

if the time of transaction is after this, within 3 working days of the date of the transaction

• Freely negotiable and in a form acceptable to the Seller acting reasonably

First provisional payment• Seller can draw on the LC once load port

weight and analysis known• Seller will require Load Port Analysis

Certificate and a Weight Certificate to draw on L/C

Second provisional payment• When index-linked price is known party who

is owed money can issue an invoice • If seller owes buyer then payment by TT• If buyer owes seller then payment by LC

• Invoice sent out by appropriate party once all factors known: Discharge port weight Discharge port analysis If index-linked price, the

average of the quotational period

• Payment to be made three working days after invoice has been received

• Payment made OUTSIDE of L/C

Amount

• Sufficient to cover the contractual value of the shipment at the Base Price (including VAT and/or excise duty where applicable) plus 10% for fixed, plus 15% for index-linked

• Amount due based on load port weight and analysis

• If the Base Price is index-linked, the published price 15 calendar days prior to ETA at load port will be used as the index price. If the price is not published on that day then the next published price after that day will be used

• Second provisional payment: reconciliation between known index-linked price and provisional index-linked price

• Reconcile between provisional amount and final amount due based on discharge port weight and analysis and if index-linked price, the average of the quotational period

1. SIOTA, Part 2, cl. 12.2


What is allowable amount of laytime?

48

Allowable laytime is:Quantity of shipment which buyer is purchasing / Cargo Handling Rate1

The cargo handling rates are 30,000 WMT per WWD SHINC for capesize, 16,000 WMT per WWD SHINC for panamax, 13,000 WMT for supramax/handymax2

If Seller is delivering two parcels 90,000 WMT of iron ore for two different buyers on a capesize (cargo handling rate of 30,000), laytime for each buyer will be

90,000/30,000 = 3 days

If Seller is delivering whole shipment of 180,000 WMT iron ore for one buyer on a capesize (cargo handling rate of 30,000 per WWD SHINC), laytime for the buyer will be

180,000/30,000 = 6 days

Example one: full shipment for one buyer Example two: one shipment for two buyers

1. SIOTA, RIOSS, p. 4.5 2. SIOTA, RIOSS, Definition of “Cargo Handling Rate”


When does laytime start?

Time of valid NOR tender1 When laytime starts to count

Before arrival period2

During arrival period3

After arrival period4

(assuming Seller met final loading date)

AP starts AP ends

Turntime

Laytime starts after Turntime which starts at the beginning of the arrival period

AP starts AP ends

Turntime

Laytime starts after Turntime OR when loading commences, whichever is earlier

AP starts AP ends

Turntime

Laytime starts after Turntime OR when loading commences, whichever is earlier

NOR

NOR

NOR

Start of laytime1. With vessel ready to load in free pratique and customs cleared 2. SIOTA, RIOSS, p. 4.2 3. SIOTA, RIOSS, p. 4.3 4. SIOTA, RIOSS, p. 4.4


What counts as laytime?

• If the shipment is holding iron ore for multiple buyers:

─ Time between beginning of laytime until instruction is given to commence unloading; and

─ Time used between draught survey of a parcel and commencement of unloading of the following parcel

• is to be divided between all the parcels unloaded at the same discharge port on a pro-rata basis of each of the parcel tonnages

• Time spent unloading buyer’s parcel will count towards laytime

• Time spent unloading another buyer’s parcel will not count towards laytime

For shipments carrying cargo for more than one buyer

• Time taken from beginning of laytime until completion of unloading.

• Excludes time:─ Taken to open and close hatches─ Attributatble to breakdown or

inefficiency attributable to the vessel or vessel crew

─ Taken for Handling ballast ─ FM (unless vessel is already on

demurrage in which case time will continue to count)

For all shipments

1. SIOTA, RIOSS p. 4.6


Demurrage/despatch liability depends amount of laytime used

Liability

Less than allowable

laytime used

Vessel completes unloading after

laytime starts and before laytime ends

Seller owes buyer 4 days of despatch

4*$5,000 = $20,000

Vessel completes unloading before

laytime starts1

Seller owes buyer 6 days of despatch2

6*$5000=$30,000

More than allowable

laytime used

Vessel completes unloading after

laytime ends

Buyer owes Seller 3 days of demurrage

3*$10,000 = $30,000

Scenario• Buyer has bought 180,000 WMT of iron ore from the Seller, Seller delivers shipment in a capesize

(Cargo handling rate of 30,000 WMT per WWD SHINC). Allowable laytime is therefore six days• Demurrage rate is $10,000/day, despatch is half demurrage at $5000/day

6 days4 days

Completion of unloading

Laytime starts

Allowable laytime ends

6 days3 days



Laytime starts

6 days


Laytime starts


1. This can happen if the vessel arrives before the arrival period. Note that the buyer does not have an obligation to discharge early. 2. Despatch calculation only for laytime


Claim for despatch/demurrage must be made within 45 days1

If time limits are not met then the claim is considered waivedPayment to be made within 5 working days once a claim is agreed upon by both parties2

1. SIOTA, RIOSS p. 4.10 2. SIOTA, RIOSS , cl 4.11

Completion of unloading Claim for despatch/demurrage to be made no later than 45 days

after completion of unloading

All supporting documentation

not available at the time of claiming to be provided

within 90 days of completion of unloading

45 days 45 days


Port agent fees are payable by seller and based on vessel size1

• For each transaction seller shall be liable to pay the benchmark port agent free provided in the SIOTA• Amount payable by the seller to the buyer is as provided in the Benchmark Port Agent Fee table below• Buyer is responsible for appointing and paying stevedores and appointing and paying a party to provide any

fendering required at discharge port• If buyer nominates two or more discharge ports for a shipment then port agent’s costs to be mutually

agreed between seller and buyer

Benchmark Port Agent Fee1

Vessel deadweight Fee (USD)

Above 220,000 130,000

185,001 - 220,000 120,000

150,001-185,000 110,000

100,001 - 150,000 100,000

70,001 - 100,000 75,000

40,000 - 70,000 55,000

1. SIOTA, RIOSS p. 5.2, p. 5.3, p. 5.4


Force majeure obligations

• Give notice as soon as possible either1

• In writing• Orally with notice in writing to follow

as soon as possible

• Act in good faith and not be able to perform the obligations or find substitute means to perform2

• Continue to remedy the cause of the FM and mitigate the impact of FM3

FM Affected party

• Take reasonable counter-measures (eg cancel or divert vessels)4

• Resume performance of the contract once FM is lifted4

• May elect to take a part of a shipment if there is a non-affected part5

Non-FM Affected Party

1. SIOTA, Part 2, cl. 15.1 2. SIOTA, Part 2, cl. 15.2.1 3. SIOTA, Part 2, cl. 15.2.2 4. SIOTA, Part 2, cl.15.3 5. SIOTA, Part 2, cl. 15.5


Force majeure leading to termination1

Notification of FM• To be provided as soon as

practicable• Includes oral notification if

notification was provided orally before written notice

Notice to terminate• Non-affected FM party can

give notice to terminate any time after this date

• Notice to be in writing

Automatic cancellation• Contract automatically

cancelled after 120 days of notice

60 days 60 days

Penalty for termination caused by FM• If no election in appendix 2 there is no penalty on either party• If so elected in appendix 2 the penalty will be as prescribed in appendix 2

1. SIOTA, Part 2, cl. 15.4


If seller fails to deliver buyer may claim from seller1

Replacement Price is • the price/dmt at which the buyer purchases

substitute iron ore in an amount and quality and on the same delivery basis as the iron ore which the seller failed to deliver (includes any incremental costs including additional transport charges incurred)

• if the Buyer does not make another purchase, the market price for such quantity and quality of iron ore, on the same delivery basis, from the same load port

Base price is the price which was agreed in the transaction

Seller’s deficiency is the quantity in DMT which the seller failed to deliver

Definitions

Sole remedy is: (Replacement Price - Base price) * Seller’s Deficiency

• Buyer and Seller agree a price of $115/DMT for 180,000 DMT, August delivery, Qingdao

• Seller fails to deliver the shipment

• Buyer spends $120/DMT to purchase 180,000 DMT, August deliver, Qingdao from an alternate Seller

• Seller owes buyer:

(120-115)*180,000= $900,000

Example

Buyer can only claim if replacement price is greater than base price

1. SIOTA, Part 2, cl. 13.1.1


If buyer fails to take delivery seller may claim from buyer1

Sales Price is: • Price/dmt at which the seller resells the iron ore

which the buyer failed to take delivery of • includes any incremental costs and additional

transport charges incurred• if the seller does not resell the iron ore the

market price for the quantity and quality of iron ore and on the same delivery basis

Base price is the price which was agreed in the transaction

Buyer’s Deficiency is the quantity in DMT which the Buyer failed to take delivery of

Definitions

Sole remedy is: (Base price – Sales Price) * Buyer’s Deficiency

• Buyer and Seller agree a price of $115/DMT for 180,000 DMT, August delivery, Qingdao

• Buyer fails to take delivery of the shipment

• Seller sells the 180,000 DMT, August delivery, Qingdao to an alternate buyer for $112/DMT

• Seller owes buyer:

(115-112)*180,000= $540,000

Example

Seller can only claim if sales price is less than base price1. SIOTA, Part 2, cl. 13.1.2


MNP and NPL transactions will be restricted to a nomination of one product

Transaction of 100kt MNP can be:

Shipment of 100 MACF

Shipment of 100 NF

Shipment of 100 PBF

Transaction of 100kt MNP cannot be:

Shipment of 60 MACF and 40 NF

Shipment of 50 PBF and 50 MACF


Each trade must be delivered in one shipment*

Transaction of 160kt for November delivery cannot be:

First delivery of 60kt in November

Second delivery of 100kt in November

Transaction of 160kt for November delivery must be: First delivery of 160kt in November

*Exception will be made to Quarter Strips which will assume one shipment in each Delivery Period within the quarter

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