Quality Adjustment Calculator
Calculate price adjustments for commodities based on quality variations vs benchmark grades. Model penalties for impurities and premiums for superior assay.
Overview & methodology
Understanding Quality Penalties & Premiums
In bulk commodity contracts, the 'Price' is never a static number until the final Discharge Port Assay is received. Adjustments are typically made for primary content (e.g., Fe in Iron Ore, API in Crude Oil), deleterious elements (Silica, Alumina, Sulfur), and physical factors like Moisture (TM). Penalties are often non-linear; exceeding a 'rejection limit' can lead to the buyer's right to refuse the cargo entirely.
Numerical Example: Iron Ore (62% Fe Basis) Adjustment
The 1.5% deficiency in Fe content results in a $2.25/MT discount from the base price.
Industry Standard References
Adjustments follow the standards set by global exchanges and industry bodies including the London Metal Exchange (LME), S&P Global Platts, and the Baltic Exchange. Assay methodologies are typically governed by ISO standards (e.g., ISO 3082 for Iron Ore sampling).