FBX Index September 2023: Looking forward
The big news is that of a watershed moment for container futures, with a large burst in trading demand from the Shanghai INE contract launched at the end of August. Large trading volumes, driven by retail trading in China, vindicates prior attempts at container futures whilst also adding substantial fuel for FBX futures contracts listed on the SGX and the CME.
In terms of price action, however, much has been tied to the success or failure of general rate increases (GRIs) implemented through the end of April up until the end of August. Initially, prompt quarter (Q4 2023) impact was substantial. FBX01 China/East Asia to North America West Coast opened on 1 June at $1,625/FEU before sharply repricing up 41.54% to $2,300/FEU on 7 June. However, contract values almost immediately tapered off in line with a dropping spot price, beginning August (on 7 August) at $1,900/FEU (down 17.39%) and then slightly rebounding to $2,000/FEU on 21 August. Conversely, despite the amount of noise in the index price, and the attempts by Maersk and CMA CGM to ratchet FAK rates to near $2,000/FEU, Q4 2023 futures prices on FBX11 China/East Asia to North Europe moved -3.75% from $2,000/FEU to $1,925/FEU. This pricing trend carries through into Q1 2024 on both routes, with FBX01 opening at $1,450/FEU on 1 June, shooting up to $2,200/FEU on 7 June, then slowly tapering to $2,015/FEU by 29 August. Even longer tenors on Cal’24 have not been spared the same price movement, FBX01 Cal’24 hitting $2,225/FEU on 16 June before pulling back to $2,030/FEU by 29 August.
Price action out of the way, supply and demand fundamentals remain eerily similar, with ship deliveries outpacing ship scrapping (which has increased over the past year), putting pressure on rates against a weak demand picture in European and North American economies. There have been micro-impacts from the threat of typhoons closing down Chinese ports, forcing Shanghai INE Apr’24 to move the limit up last week, quickly normalising. The feeling out of China is a pullback away from any ‘big bang’ stimulus package from the CCP (as we saw post-financial crisis in 2008) with concerns over high debt levels in China. However, green shoots come from relative support for the beleaguered commercial and residential real estate sector, which has been sucking the energy out of the Chinese economy.
However, the big real terms and potentially explosive event through August has been the success of the Shanghai INE futures contract, opening up opportunities for arbitrage trading between the INE and SGX/CME FBX futures – opening spreads often $200 to $300 wide on similar tenors. SGX/CME seems to also be attracting blocks of much larger volumes from companies looking to hedge freight rates against recognisable periods. The launch and success of the INE is almost identical to the formative impact of the launch of Dalian Commodities Exchange Iron Ore futures, on the explosion of Iron Ore Futures volumes on the SGX. This combines with a clear growth in index linking and index referencing, bringing together the pieces of the futures market puzzle that have been years in the making.
Source: Freight Investor Services