FFA Update

The Paper market returned from the break to find the Cape Index in unusually positive territory for the time of year. Only one year in the last eight (2021) have we seen a Cape January settle in excess of $20,000. This has led to extreme uncertainty in the market, with severe intraday volatility, particularly on the nearby contracts. One thing is for sure however, the status quo cannot be maintained. With an Index at $29851, backwardated to Jan at $21350, and Feb at $12850, something will have to give as time erosion takes its toll.

The Panamax curve has been more manageable, with the pre-Christmas backwardation having eroded quickly. This has come from a combination of Index losses on the spot, combined with strong support from sellers of Cape / Pmx spreaders. These participants were keen to either take profit or short the new highs being reached on inter size spreads for Q2, Q3, Q4 and Cal 24. The Supramax sector has followed a similar trend to Panamax, buoyed by a combination of implied spread buying support and outright hedge interest.

A bearish tone has pervaded the market to start the week, setting a negative tone. Despite this, the Index will have to accelerate on the downside. If not, it’s likely we’ll see a rebound.

By Greg McAndrew, Partner, Derivatives, SSY