Freight Derivatives volumes up 44%, Iron Ore Futures volumes up 34% in year to date

The Freight and commodity futures complex has shown strong volume growth so far in 2019 as a combination of macro-economic factors and the tragic events in Brazil have heightened uncertainty and created trading opportunities.

The collapse of the tailings dam at Vale’s Feijao iron ore mine has curtailed production from the world’s biggest exporter and the supply constraints have shifted the export focus to Australia.

The impact of reduced Brazilian exports had an immediate impact on the Capesize market which is dependent on the long voyages from Brazil to China.

At the same time, changes in the Chinese economy that will see the emphasis shift to consumption rather than production, coupled with uncertainty over US-China trade relations are maintain volatility as the year progresses.

 

The first two months of 2019 saw a dramatic fall in dry bulk freight rate. While the impact on earnings was negative, the resulting volatility acted as a huge spur to FFA volumes, attracting new players to the market.

The total impact on the FFA market was to increase combined FFA volumes by 44% in the year to date 2019 compared to the same period of 2018, though options volume fell by 5%.

Market Volume 2018 Full Year 2018 YTD 2019 YTD 19 vs 18 YTD
Cape 481,725 70,509 111,343 58%
Panamax 571,895 104,620 153,806 47%
Supra 141,078 35,330 38,413 9%
FFA 1,197,034 210,939 303,607 44%
FFA Option 263,935 57,739 54,939 -5%
FFA + Option Total 1,460,969 268,678 358,546 33%

 

The Capesize spot market recorded a YTD low of $4,236 and a high of $16,106, the Panamax spot market saw a YTD low of $4,435 and a high of $11,144. Supramax spot rates recorded a YTD low of $4,837 and a high of $11,141.

Iron Ore

The tragedy in Brazil saw iron ore break out of its recent price range, as Brazil’s exports were effectively curtailed with export demand switching decisively to Australia.

As a result, China is set to import 60% of Australian production and 70% of global seaborne trade volumes of 1.5bn tonnes in 2019. Iron ore price predictions for 2019 range from $100/mt (Bank of America) to $77/mt (JPM) and $69 (HSBC/Barclays). Physical iron ore 2019 YTD spot rates are $81.86, up 7%.

Market Volume 2018 Full Year 2018 YTD 2019 YTD 19 vs 18 YTD
Iron Ore 924,226,000 174,670,500 234,616,000 34%
Iron Ore Option 245,384,500 50,873,200 74,812,500 47%
Iron Ore + Option Total 1,169,610,500 225,543,700 309,428,500 37%
FFA Market Volume 2018 Full Year 2018 YTD 2019 YTD 19 vs 18 YTD
C5 (Aus-China) 10,305 1,220 5,960 389%

In 2019 the Marine Fuel Oil market will reflect the rising cost of compliance with IMO2020, which will see permitted sulfur levels cut to 0.5% globally.

The inherent volatility in the market, coupled with the uncertainty around IMO2020 is attracting players from the FFA market as fuel represents 70% of the freight rate on a C5 Capesize voyage.

The first 0.5% Marine Fuel futures trade, brokered by FIS in January was concluded at a $200 differential to HSFO and since then the market has narrowed to around the $190-195 level.

If you would prefer to read the report in PDF form, it can be downloaded from here: FIS Freight and Commodity Futures Report Mar 2019.

If you would like more information on any of these markets, to discuss trading opportunities or to receive our daily reports on freight, iron ore, fuel oil, please contact Jack Harding or Michael Gaylard in London +44 (0)207 090 1120.