Iron awe: How Singapore became world's main trading hub in just 10 years

MOST cycling and barbecue enthusiasts in East Coast Park would have seen heavily laden vessels carrying a variety of commodities, mostly heading eastwards. Some of the largest of these ships are VLOCs (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 the last 10 years, it has become the world's main trading hub of the US$100 billion a year industry.

Digging back into iron ore's past, you do not 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 could not 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 was not uncommon for one side to feel aggrieved, or even in many cases, refuse to pay for the cargo.

This decades-old system finally broke down between 2008 and 2010, when both sides struggled to find common ground as the global financial crisis and China's rapid urbanisation had imbalanced the physical iron ore market, leading to unprecedented volatility in prices, and eventually to a much needed modernisation of the industry.