Most cycling and barbecue enthusiasts in the East Coast Park in Singapore would have seen heavily laden vessels carrying a variety of commodities, mostly eastwards. Some of the largest of these ships are VLOCs, or Very Large Ore Carriers, carrying iron ore to steelmakers in China, South Korea and Japan, after having stopped in Singapore to refuel. The city-state, however, is more than a gas station for these iron ore ships. In last 10 years, it has become the world’s main trading hub of the $100 billion/year industry. Digging back into iron ore’s past, you don’t have to go far to find secretive smoke-filled cigar rooms wherein senior executives would strike an annual price. While allowing both sides to have some visibility on prices for the year to come, this annual “benchmark” had one key weakness: it couldn’t keep up with live, or spot, market prices, which move constantly depending on the demand-supply balance. This means that when a price moved sharply, it wasn’t uncommon for one side to feel aggrieved, or even in many cases, to refuse to pay for a cargo. This decades-old system finally broke down between 2008 and 2010, when both the sides struggled to find… continue reading
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Source: CTRM Center