FFA Update

The volatile start to the year continued over the course of the last week, as bearish sentiment crept in before rebounding, then finishing on a soft note. This initial weakness was personified by the Cape Feb contract, which dipped to a low of $9900 before rebounding to $15100. This latter move was prompted by the Index turning positive, moving from $14375 to $18608 over three trading days. Panamax and Supramax paper followed a similar trend to Cape, albeit with less violent swings. The softening Index saw Panamax drop to $11373, before moving marginally positive by end of week.

The Supramax decline has yet to reverse as yet, finding a low of $11301. Despite the negative trend, both sizes have found buyers on paper in the last few days, with the curve showing solid support when tested on the downside. With seven days of pricing remaining for the month, the main question remains on the backwardation evident on the Cape curve. The differential from spot to Feb remains at close to 35%, and flows in the market suggest that the majority feel this gap will be narrowed by Feb moving up toward the spot Index.

By Greg McAndrew, Partner, Derivatives, SSY