London: The volatile nature of the dry bulk market has led to record bets placed in freight derivatives in the past month.
Figures compiled by London’s Baltic Exchange show that April was the busiest month of the year for the dry bulk freight derivatives market. In excess of 140,000 lots were traded in the Forward Freight Agreement (FFA) and options markets, a 60% increase on average volumes for the first three months of 2015.
Commenting on the rise, Baltic Exchange chief executive Jeremy Penn said: “Unlike previous rises in the FFA market, this has come against a backdrop of very low spot rates in the physical shipping market. Much of the rise was driven by a surge of interest in capesize options, 40,000 of which were traded in April.”
Meanwhile in Singapore, the number of dry bulk freight contracts traded via the Singapore Exchange (SGX) jumped 700% year-on-year to 14,154 contracts in April.
SGX said, “While a seasonal improvement in demand provided some support for larger vessels, freight rates in general remain near multi-decade lows. Vessel demolitions are reportedly rising, though are yet to offset oversupply while demand has been unable to significantly lift rates. Numerous uncertainties plague the capesize market.”
SGX added in a release earlier this week: “With uncertainty over where supply cuts will come next, the playing field remains wide open on who stays and who goes in the iron ore market, and the implications for freight rates are significant.”
A broking source cautioned that the statistics from Singapore were not quite what they seemed.
“SGX doesn’t clear much freight – mostly iron ore swaps – so the increase is from a lower base. Most freight is cleared at LCH.Clearnet in London,” the source pointed out.
Commenting on the buoyant FFA statistics, John Banaszkiewicz, managing director of London-based inter-dealer broker FIS, told Splash: “Freight derivatives have never lost their appeal. Despite the market’s recent lows they remain an efficient and cost effective means of hedging physical exposure. At a time when credit risk is an issue, trading cleared freight swaps and options is a good way of ensuring you will get paid.”