Saturday, March 05, 2005
Have Gridley/Leeds Help Us ID Players Here?
Shipping derivatives gather head of steam
>By Kevin Morrison
>Published: March 2 2005 22:24 | Last updated: March 2 2005 22:24
>>
Hedge funds and financial brokers are taking an increasing interest in shipping derivatives following the steep rise in freight costs prompted by the growth of the Chinese economy.
A new report by Celent, a research and advisory firm, says the boom in activity could lead to a rise in
>the number of electronic exchanges that trade shipping derivatives.
Derivatives trading on shipping rates, also known as forward freight agreements (FFAs), rose by 70 per cent last year to $30bn, said Axel Pierron, the report’s author.
Mr Pierron forecasts the market will increase by another 70 per cent this year, following growth rates of 80 per cent in 2003 and 20 per cent in 2002. Shipping derivatives trade is conducted in the over-the-counter (OTC) market and benchmarked against prices listed on the Baltic Exchange, which is based in London.
He said hedge funds were also attracted to shipping derivatives trading because of the volatility, as many investors viewed the market as an extension of the underlying physical commodity market.
The Baltic dry freight index, a basket of prices for charting vessels on 25 of the world’s most important routes, more than quadrupled to its record high in December but has since fallen more than 20 per cent. “If you are involved in the buying and selling of commodities, you have to know the cost of shipping, and the only way you can manage that cost is to hedge,” said Mr Pierron.
More than 6bn tonnes of raw materials a year – or about 90 per cent of world trade by weighted volume – is carried by sea. Shipping is also expected to take a greater role in the oil market, with more than a third of global oil production transported by ships, a proportion that is expected to rise over the next decade.
Mr Pierron said Norway’s Imarex was the only electronic trading platform for FFAs. It has captured 15 per cent of the total FFA market in only two years. He said transaction volume on the Imarex platform had risen from 10 transactions in the first quarter of 2002 to more than 1,200 in the fourth quarter of last year.
Imarex has a greater share of the wet freight market, which is the segment that covers the oil tanker market, with a 35 per cent market share.
Mr Pierron said the average transaction value on Imarex was lower than the voice brokerage market, which would make it attractive for other electronic platform providers to come in and offer a service. “The success of Imarex might convince other electronic platforms such as Eurex and Euronext to expand into shipping,” he said.
Euronext already provides an electronic platform for trading in coffee, sugar and wheat.
He said Imarex might eventually be integrated into a larger exchange because it lacked the range of products that would complement FFAs such as energy, metals and agriculture.
Find this article at:
http://news.ft.com/cms/s/b334ee50-8b68-11d9-ae03-00000e2511c8,ft_acl=,s01=1.html
>By Kevin Morrison
>Published: March 2 2005 22:24 | Last updated: March 2 2005 22:24
>>
Hedge funds and financial brokers are taking an increasing interest in shipping derivatives following the steep rise in freight costs prompted by the growth of the Chinese economy.
A new report by Celent, a research and advisory firm, says the boom in activity could lead to a rise in
>the number of electronic exchanges that trade shipping derivatives.
Derivatives trading on shipping rates, also known as forward freight agreements (FFAs), rose by 70 per cent last year to $30bn, said Axel Pierron, the report’s author.
Mr Pierron forecasts the market will increase by another 70 per cent this year, following growth rates of 80 per cent in 2003 and 20 per cent in 2002. Shipping derivatives trade is conducted in the over-the-counter (OTC) market and benchmarked against prices listed on the Baltic Exchange, which is based in London.
He said hedge funds were also attracted to shipping derivatives trading because of the volatility, as many investors viewed the market as an extension of the underlying physical commodity market.
The Baltic dry freight index, a basket of prices for charting vessels on 25 of the world’s most important routes, more than quadrupled to its record high in December but has since fallen more than 20 per cent. “If you are involved in the buying and selling of commodities, you have to know the cost of shipping, and the only way you can manage that cost is to hedge,” said Mr Pierron.
More than 6bn tonnes of raw materials a year – or about 90 per cent of world trade by weighted volume – is carried by sea. Shipping is also expected to take a greater role in the oil market, with more than a third of global oil production transported by ships, a proportion that is expected to rise over the next decade.
Mr Pierron said Norway’s Imarex was the only electronic trading platform for FFAs. It has captured 15 per cent of the total FFA market in only two years. He said transaction volume on the Imarex platform had risen from 10 transactions in the first quarter of 2002 to more than 1,200 in the fourth quarter of last year.
Imarex has a greater share of the wet freight market, which is the segment that covers the oil tanker market, with a 35 per cent market share.
Mr Pierron said the average transaction value on Imarex was lower than the voice brokerage market, which would make it attractive for other electronic platform providers to come in and offer a service. “The success of Imarex might convince other electronic platforms such as Eurex and Euronext to expand into shipping,” he said.
Euronext already provides an electronic platform for trading in coffee, sugar and wheat.
He said Imarex might eventually be integrated into a larger exchange because it lacked the range of products that would complement FFAs such as energy, metals and agriculture.
Find this article at:
http://news.ft.com/cms/s/b334ee50-8b68-11d9-ae03-00000e2511c8,ft_acl=,s01=1.html
# posted by Tom @ 5:58 AM 
