It looks set to be a good weekend for capesize owners after one of the most sudden and dramatic rallies in spot rates in more than a decade, but it has also been a record-breaking week in the freight derivatives market.
Wednesday saw record cleared volumes on capesize contracts. Nearly 19,100 lots cleared across the capesize 5TC contracts and options, and futures on the C5 Australia to China route, according to data compiled by Freight Investor Services (FIS), a specialist brokerage of freight and commodities derivatives.
Capesize rates jumped by 11% on Friday, raising the 5TC average of spot rates across five key benchmarks to $51,727 per day.
But will this week’s rally be noted in shipping history books as a small step or a giant leap for the capesize market?
FIS has run the numbers and has concluded that, of course, the 2023 capesize comeback does not compare with the mother of all rallies in 2008 — but it still deserves recognition.
“We’ve dug deep into Santa’s present bag of yesteryear to remind ourselves of some old record market stats,” chief executive John Banaszkiewicz told TradeWinds.
“To many companies, 2008 was the best and worst year. The cape freight index lost some 99% of its value from spring 2008 to its low at the end of that year. This blows away any other commodity market, and even crypto, in terms of volatility.
“We have seen the market grow since then to something which shipping companies can’t ignore.”
The numbers today may not match the highs of 2008 but are still worthy of note, particularly with how the 19,057 lots of capesize contracts compare with the historic peak.
A record day for forward freight agreement market volumes came on 24 September 2008, when around 36,000 lots of capesize contracts were traded. Capesize spot rates in the physical market were $56,724 per day at that time.
More than 90% of trading was being cleared, but a small percentage still traded over the counter at that point in 2008.
Capesize FFA trading volumes on Wednesday this week — when the 5TC cape index recorded its biggest daily rise in 13 years — totalled 53m tonnes. This is just over half of the 100m tonnes transacted on 24 September 2008.
The highest value trade for FIS on that day 15 years ago was a September-December strip at $80,000 per day. As of Friday, a December-February strip is valued at $20,450 per day.
The market for capesize contracts saw more big gains on Friday. Bids for 5TC December contracts were at $38,500 per day shortly before the close of trading, up by more than $5,600 on the previous day’s settlement price.
Bids for January paper — the time of year when capesize physical rates begin their seasonal retreat — also pushed higher on Friday. Bidding was at $20,500 per day shortly before the market closed, having settled on Thursday at $18,000 per day.
Banaszkiewicz’s wishes for next year are pretty simple: “On my Christmas list for 2024, coinciding with the year of the dragon, is an absolute Christmas cracker of a market.”
And so say all of us.