Every processing business has two exposed flanks: the supply of what goes in, and the sale of what comes out. A refinery without crude, a mill without scrap, an asphalt plant without binder or a recycler without tyres is an idle asset. A producer without a committed buyer is a price-taker carrying inventory it cannot finance. Feedstock agreements and offtake agreements are the contracts that close those flanks — and, increasingly, they are the documents lenders and investors read first when deciding whether a project or a trading programme is bankable.
Caribbean Equities sources feedstock for processors and manufacturers, and secures offtake for producers, terminals and traders, across fuels and oils, bitumen and asphalt, steel and scrap metal, rubber and tyres, and the freight that connects them. We identify and verify counterparties, structure the commercial terms, align the contracts with financing, and stay involved through performance. This page explains what these agreements are, how they work, who they serve, the terms that matter, how we run a sourcing or offtake mandate, and answers to common questions.
What feedstock and offtake agreements are
A feedstock agreement (also called a supply agreement or raw-material supply contract) is a contract under which a supplier commits to deliver specified quantities of a raw material or intermediate product to a buyer — usually a processor or manufacturer — over a defined period, at prices determined by an agreed formula.
An offtake agreement is the mirror image: a contract under which a buyer commits to purchase specified quantities of a producer's output over a period, again on agreed pricing terms. In project finance, offtake agreements are often the central credit support for a new plant, because they demonstrate to lenders that the project's production has a committed market.
The two are frequently linked. A processor may sign a feedstock agreement with an upstream supplier and an offtake agreement with a downstream buyer, so that its input and output volumes, quality and timing line up. A trader may sit in the middle, buying under one contract and selling under another on a back-to-back basis. Where the pricing of both legs references the same benchmark, the processor or trader locks in a margin and reduces its exposure to market movements.
Term contracts versus spot purchases
Commodities can be bought and sold spot — one cargo at a time, priced at the time of the deal — or under term contracts that commit volumes over months or years. Spot trading offers flexibility and the chance to capture favourable prices, but leaves the buyer exposed to supply shortages and the seller exposed to weak demand. Term contracts trade some of that flexibility for security of supply, security of market and, often, better access to finance.
Most well-run businesses use a mix: a core of term supply or offtake covering their baseline needs, with spot purchases or sales at the margin to respond to market conditions. Part of our role is helping clients decide what that mix should be.
Why these agreements matter
Security of supply
For a processor, an interruption in feedstock is an interruption in revenue. A long-term feedstock agreement with a reliable supplier — or, better, with several suppliers — reduces the risk that a plant sits idle because a cargo did not arrive or a local supplier sold elsewhere.
Security of market
For a producer, a committed buyer means predictable cash flow, efficient inventory management and a stronger negotiating position with lenders. Offtake agreements are especially valuable for new entrants and for projects that need debt finance to build or expand capacity.
Bankability
Lenders and investors evaluate commodity businesses by asking a simple question: where does the money come from, and how sure is it? Feedstock and offtake contracts with creditworthy counterparties answer that question. A pre-export finance facility, a borrowing base or a project loan will usually be sized and priced by reference to them.
Price risk management
Formula pricing in term contracts — benchmark plus or minus a differential — means both parties share exposure to the same reference price. Combined with hedging, this lets processors and traders lock in margins rather than speculate on outright price direction.
How sourcing and offtake work in practice
Defining the requirement
Everything starts with specification. A buyer of diesel needs to know whether it requires EN 590 or ASTM D975 ULSD, and what its national standards bureau will accept. A buyer of bitumen needs to know whether it requires 60/70 penetration grade or a PG 70-22 performance grade, and whether it can receive bulk or needs drums. A steel buyer needs grade, dimensions and mill certificate requirements. A scrap buyer needs the ISRI/ReMA grade and contamination tolerances. The specification determines which suppliers are eligible and which logistics are feasible.
Volume and timing come next: monthly or quarterly quantities, flexibility tolerances, delivery windows, seasonality (paving seasons, hurricane season, crop cycles) and the term of the commitment.
Identifying counterparties
We map potential suppliers or buyers against the requirement: producers, refiners, mills, terminals, trading houses, recyclers and distributors. In the commodities we cover, a large share of advertised offers are not genuine — they are chains of intermediaries passing on the same material, or outright fabrications. We approach counterparties directly where we can, and we verify before we introduce.
Verification
Verification covers corporate identity and ownership (KYC), sanctions and adverse-media screening, financial standing, operational capability (Does the refinery exist and produce this grade? Does the mill hold the claimed certifications? Does the yard have the volumes?), and track record (prior shipments, references from banks, inspectors and buyers). For buyers, we look at payment capacity and banking relationships. We do not ask counterparties to send money, sign exclusivity or provide proof of funds before basic verification is complete on both sides.
Structuring and negotiating
With verified counterparties, we structure the commercial terms — volumes, pricing formula, Incoterms, payment security, quality and inspection, logistics — and negotiate a term sheet. We then work with each party's counsel to convert the term sheet into a contract, keeping the drafting consistent with any related agreements (freight contracts, financing documents, tolling agreements).
Performance and administration
Once the contract is signed, the real work begins: nominations, vessel or truck scheduling, inspection, documentation, invoicing, claims and periodic price reviews. We can stay involved as administrator, coordinating the operational and documentary flow and flagging issues early.
Who these services are for
Processors and manufacturers
Refiners and blenders, asphalt plants and bitumen terminals, re-rolling mills and fabricators, EAF steelmakers and foundries, tyre and rubber-goods manufacturers, and recyclers who need reliable, specification-compliant feedstock at competitive prices.
Producers seeking committed buyers
Refineries, mills, recyclers, terminals and plantations that want to lock in a share of output with creditworthy buyers — whether to stabilise revenue, support financing or enter new markets.
Importers and distributors
National fuel importers, construction-material distributors, tyre distributors and steel stockists who want term supply rather than repeated spot tenders.
Governments and public procurement
Public works departments, utilities and state-owned enterprises that need secure supply for infrastructure and power programmes and prefer structured, transparent term contracts.
Project developers
Developers building new processing capacity — blending terminals, recycling plants, rolling mills — who need feedstock and offtake commitments to raise debt and equity.
Lenders and investors
Banks, private credit funds and investors financing commodity businesses who want independent support in assessing or structuring the supply and offtake contracts underpinning their exposure.
The terms that matter
Quantity and flexibility
Term contracts specify annual or periodic quantities, with tolerances (often plus or minus five to ten percent) at the buyer's or seller's option. Take-or-pay provisions require the buyer to pay for minimum quantities whether or not it takes them; supply-or-pay provisions require the seller to compensate the buyer if it fails to deliver. These provisions are what make the contract bankable, but they must be calibrated realistically.
Pricing
Most term contracts use formula pricing: an index or benchmark averaged over a pricing period, plus or minus a fixed or negotiated differential. Benchmarks include exchange settlements (NYMEX ULSD and RBOB, ICE gasoil, CME HRC, LME and COMEX metals, SGX TSR20) and price-reporting agency assessments for physical cargoes. The differential reflects quality, location, freight and credit terms. Longer contracts include price review or reopener clauses so that differentials can be reset if market structure changes materially.
Incoterms and delivery
The Incoterm — FOB, CFR, CIF, DAP, FCA and so on, under Incoterms 2020 — determines who arranges and pays for freight and insurance, and where risk passes. FOB contracts suit buyers with their own chartering capability; CFR or CIF contracts suit buyers who want a delivered price. Delivery windows, laycans and nomination procedures must align with the freight contract.
Quality and inspection
Quality specifications should reference recognised standards and name the testing methods. Independent inspection at the load port — by internationally recognised inspection companies — is standard; the contract determines whether load-port results are final or whether discharge-port testing can trigger claims.
Payment and credit support
Payment terms range from prepayment and cash against documents to documentary letters of credit (UCP 600), standby letters of credit (ISP98) supporting open-account terms, and credit-insured receivables. The appropriate instrument depends on the parties' credit standing, the jurisdiction and the size of exposure.
Title and risk
The contract should state when title passes (often on payment, or on transfer of documents) and when risk passes (by reference to the Incoterm). For financed transactions, title arrangements must satisfy lenders' security requirements.
Force majeure and hardship
Hurricanes, port closures, plant outages and sanctions are realities in our markets. Force majeure clauses should be specific about qualifying events, notice requirements, mitigation obligations and the consequences of prolonged events, including termination rights.
Compliance
Sanctions, anti-bribery, anti-money-laundering and responsible-sourcing provisions are now standard. For scrap and used tyres, environmental compliance — including Basel Convention controls on waste — is critical.
Term, renewal and termination
Term length should match the parties' needs and financing tenor. Renewal options, early termination for convenience (with notice and compensation), and termination for default protect both parties.
Our process
- Requirement brief. We document the specification, volumes, timing, delivery points, payment preferences and commercial objectives.
- Market mapping. We identify potential counterparties and assess market conditions — supply availability, price structure, freight and seasonality.
- Verification. We carry out KYC, sanctions screening and capability verification on shortlisted counterparties before any introduction.
- Indicative terms. We obtain indicative terms from verified counterparties and present them side by side, normalised to a common delivered or FOB basis so they can be compared fairly.
- Negotiation. We negotiate on our client's behalf to agree a term sheet, then support counsel in documenting the contract.
- Financing alignment. Where the contract supports or requires financing, we coordinate with lenders and credit insurers so that documentation, payment flows and security arrangements fit together.
- Trial shipment. For new relationships we often recommend a trial cargo on simplified terms before the full term commitment begins.
- Performance management. We monitor nominations, inspections, documentation, invoicing and claims, and report to our client on contract performance.
Trial cargoes and staged commitments
A first transaction between new counterparties carries risks that later ones do not: unfamiliar documentation, untested logistics, unknown quality consistency. A trial cargo — one shipment on terms both sides can live with — lets the parties prove the lane before committing to volume. We typically structure trials with stronger payment security (for example, a documentary credit rather than open account), conservative quantities and clear criteria for moving to a term contract. Our private credit and insurance wrapper service can add credit insurance or guarantee support to trial trades where a counterparty's credit standing is not yet established.
Back-to-back structures
Where Caribbean Equities or a client sits between a supplier and a buyer, contracts are often structured back-to-back: the purchase and sale contracts mirror each other on specification, quantity, timing, Incoterms and inspection, so that obligations flow through cleanly. Back-to-back drafting requires care — a gap between the two contracts (a different laytime clause, a different inspection rule, a different force majeure definition) leaves the party in the middle exposed. We check the alignment line by line.
Commodity-specific considerations
Fuels and oils
National fuel specifications, terminal access, sulphur limits, seasonal gasoline volatility and customs regimes dominate. Pricing typically references US Gulf Coast or New York Harbor benchmarks plus freight.
Bitumen and asphalt
Seasonality of paving programmes, availability of heated storage, packaging choice (bulk, drums or bitubags), and performance-grade requirements drive both sourcing and offtake.
Steel
Mill allocations, rolling schedules, trade-remedy duties by origin and dimension-specific availability mean steel sourcing is as much about timing as price.
Scrap metal
Grade discipline, contamination control, radiation screening and export licensing determine whether a scrap offtake works. Yards benefit from term offtake that rewards consistent grading.
Rubber and tyres
Natural rubber supply is concentrated in Southeast Asia and West Africa, with pricing referenced to SGX TSR20. Tyre offtake for end-of-life products depends on permitted end uses and regulatory regimes.
Freight
Freight availability and cost can make or break a delivered contract. We integrate freight into sourcing and offtake decisions, including contracts of affreightment for recurring programmes.
Common pitfalls we help clients avoid
Most failed supply and offtake relationships fail for predictable reasons. The most frequent ones we see are:
- Specification drift. The contract refers to a generic product name rather than a precise standard and test method, so each cargo becomes a negotiation. We tie every quality term to a named standard, a named method and a named inspector.
- Unrealistic volume commitments. Take-or-pay quantities set at a level the buyer cannot actually absorb in a weak season, or supply commitments the producer cannot meet during maintenance. We stress-test volumes against seasonal demand and plant availability before they are signed.
- Misaligned freight terms. A delivered sales contract with generous laytime sitting on top of a charter party with tight laytime, leaving the seller paying unrecovered demurrage. We align laytime, notice and demurrage provisions across every contract in the chain.
- Payment instruments that do not match the documents. Letters of credit requiring documents the logistics chain cannot produce in time, causing discrepancies and delayed payment. We review credit terms against the actual document flow before issuance.
- Unverified intermediaries. Introductions that pass through several unknown parties, each adding a commission and none able to perform. We go to source wherever possible and verify every party that remains in the chain.
- No mechanism to reopen pricing. Multi-year contracts with fixed differentials that become uneconomic for one side when market structure shifts. A balanced review clause keeps the relationship alive.
How we measure a successful programme
We judge a sourcing or offtake programme by outcomes the client can see: delivered cost versus the client's previous baseline or alternative quotes; on-time delivery and laycan performance; the share of cargoes accepted without quality claims; the time from bill of lading to payment; the number of documentary discrepancies; and, for financed programmes, whether the contract structure delivered the advance rates and pricing lenders promised. We report against these measures at regular intervals so the client can see where the programme is performing and where it needs attention.
What we do not do
We do not publish lists of "available" cargoes, we do not ask for upfront fees to make introductions, and we do not participate in daisy chains of unverified intermediaries. Every counterparty we introduce has been through our verification process, and every structure we propose is designed to be documented, inspected and financed in the normal way.
Frequently asked questions
What is the difference between a feedstock agreement and an offtake agreement?
A feedstock agreement secures supply of a raw material to a buyer, usually a processor. An offtake agreement secures a buyer for a producer's output. They are mirror images, and are often linked so that a processor's input and output contracts align.
How long are typical term contracts?
From six months to several years. Shorter terms suit volatile markets and new relationships; longer terms suit project finance and established relationships. Price review clauses help longer contracts stay balanced.
How is pricing set in a term contract?
Usually by formula: a published benchmark averaged over a pricing period, plus or minus a differential reflecting quality, location, freight and credit. Fixed prices are possible for shorter periods, often combined with hedging.
Do you charge upfront fees?
Our fees are agreed transparently at engagement and are typically success-based or a combination of retainer and success fee for complex mandates. We do not ask counterparties for advance fees in exchange for introductions.
Can you help us secure offtake to support a project financing?
Yes. We identify and negotiate with creditworthy offtakers, structure terms that lenders find acceptable, and coordinate with the financing team so that the offtake agreement supports the debt.
What if we need a smaller quantity than a full cargo?
Smaller quantities can often be sourced through in-tank transfers, containerised shipments, co-loading or regional distributors. We will tell you honestly when a requirement is too small to be economic on a given lane.
How do you verify suppliers?
Through corporate KYC, sanctions and adverse-media screening, financial review, operational verification (site visits, plant and certification checks), track-record references and, where appropriate, independent inspection of material before shipment.
Do you take title to the product?
Depending on the mandate, we act either as adviser and arranger or as principal in back-to-back transactions. We agree the role at the outset and make it explicit in our engagement terms.
Which regions do you cover?
The Caribbean, the US Gulf and Atlantic coasts, Mexico, Central America and northern South America, with sourcing reaching into global supply markets where specification and economics justify it.
What do you need from us to get started?
A clear brief: product and specification, volumes and timing, delivery location, payment preferences, and any existing counterparties or constraints. We will respond with an assessment of feasibility and a proposed approach.
Can an offtake agreement be used as collateral?
Indirectly, yes. Lenders rarely take the contract itself as standalone collateral, but a signed offtake agreement with a creditworthy buyer supports pre-export finance, receivables finance and borrowing-base facilities, because it gives the lender visibility over how and when the financed goods will turn into cash. Assignment of proceeds, notices to the offtaker and credit insurance on the buyer are the usual mechanics we put in place.