The dry freight market, which transports bulk commodities around the globe, saw a dramatic increase in trading last week, clearing over 75,000 lots across the Cape, Panamax and Supramax vessel sizes.
An estimation of the notional value of last week’s trading puts it at over $1.02 billion worth of freight at today’s current prices, or 140 million tonnes in an unprecedented period of trading.
On Tuesday 9th February 2021 we saw a historical daily volume high totalling 25,840 days, with the Panamax market alone posting over 20,600 days (split 40.5% futures and 59.5% options).
John Banaszkiewicz, CEO of Freight Investor Services, said
“2020 may have been the year of equities, but 2021 is gearing itself up to be the year of commodities – and nowhere is that truer than in the freight market. Last week we saw a mammoth 75,000 lots traded on freight, eclipsing the last dry shipping cycle boom in 2008.
On the 24th September 2008 62,000 lots traded in the midst of the financial crisis and dramatic iron ore price collapse, which crushed shipping rates. But we have smashed through that amount this past week”
Current volumes YTD on average are double where they were in 2020, with Cape market trading up 61%, Panamax up 126% and Supramax up 99%. This increase has also extended to option trading which YTD vs 2020 is up over 100%.
Traded volumes have surpassed the frenzy of trading seen during the crash in 2008, which saw the market lose some 95% of its value in a month. The drive up in volume then was caused by market freight rates collapsing from over $200,000 a day to around $2,000.
John Banaszkiewicz, said
“Dry shipping is one of the main indicators of a boom in commodities that has seen front month future iron ore 62% Fe rise to $162.80 to China, thermal coal to $65.55 and US Nola Urea to $335.
Q1 typically sees a slowdown in economic activity and therefore shipping rates, but this year with the strong economic recovery from countries like China, and further recovery expected with expanding vaccine programmes, we have a totally different scenario.”
On top of the large trading volumes, the market has also seen significant price volatility. The daily cost of hiring a ship for a 74,000 dwt vessel on the 4th January 2021 was $10,936 and has now soared to over $18,200 per day, a 67% move. Capesize and Supramaxes also moved 26% and 23% respectively. With the surge in commodity prices, many companies have been caught short on the rally, and therefore this has pushed volumes up in a short squeeze, especially in the Panamax market.
The increases in volume and the continued volatility mean that the freight markets are attractive for investors looking for alternate markets, ones with enough liquidity, volatility, and asymmetry to traditional investment sectors.
Here at FIS, we are committed to helping those who have exposure to any of the freight or bulk commodity markets to hedge or trade, as well as assist those who are looking to expand into new markets.