05/11 The Standard Iron Ore Trading Agreement (SIOTA)

Commodities In Focus email alert

Tuesday 17 May 2011

Global Ore has published its long awaited draft Standard Iron Ore Trading Agreement (SIOTA). When the final version is released for use on Global Ore's trading platform, the objective of SIOTA will be to develop the iron ore trading market for both physical and derivatives trades by providing a single and accepted set of terms and conditions.

Global Ore is a subsidiary of Global Coal who first introduced the Standard Coal Trading Agreement (SCoTA) in 2001 with the same objective for thermal coal trading. The current version of SCoTA is 7e which became effective after 3 April 2011. Not surprisingly, the format of SIOTA closely follows that of SCoTA. Global Ore aim to make SIOTA effective and available for use on its trading platform in the third quarter of 2011.

The key aspects of SIOTA are:

  • Five Relevant Standard Specifications (RSS) listed below. These need not be exclusive:
    - FOB Aus 58 (version 1)
    - CFR Quangdao 58 (version 1)
    - CFR Quangdao 58 laps (version 1)
    - CFR Quangdao 62 (version 1)
    - CFR Quangdao 65 (version 1)
  • A broad range of possible delivery terms for iron ore: FAS, FOB, DAP, DAT, DES, CFR and CIF.
  • A framework that differs from SCoTA:
    - New Part 1: Agreement and Execution
    - New Appendix 4: Pro forma Seller's letter of indemnity for delivery without production of bills lading
    - New Appendix 5: Transaction Summary (rather than Part I as in SCoTA)
    - New Appendices 6 and 7: Pro forma letter of credit and standby letter of credit
  • Terms and conditions that closely follow SCoTA except for:
    - Changes designed to cover additional definitions, adapt the agreement for the iron ore trade and simplify the drafting to deal with the new RSS and delivery terms.
  • Additional obligations:
    - CIF and CFR Seller to ensure the carrying vessel arrives at discharge port within the defined discharge period
    - Buyer to pay against Seller's invoice and letter of indemnity (in the format at Appendix 4) where shipping documents are not available
  • Additional options:
    - Seller's option to require payment by way of letter of credit or standby letter of credit in the format at Appendices 6 and 7
    - Mediation via Global Ore upon joint request of both Seller and Buyer