FBX Index September 2024: Looking forward

Futures prices remained as volatile as their physical rate counterparts in August, which reflects the revised physical market expectations following the apparent surprise surge in rates from May into June.

Key Points
Asia-US West Coast to East Coast spreads have widened. These routes historically correlate, opening opportunities to trade the spread. FBX03 Q4 markets are in play at about 13-15% discount from spot.

INE/FBX spreads widened substantially in August as INE SCFIS contracts have approximately halved their value, opening up arbitrage opportunities (even as spot prices remain resilient)

Disruption in the Red Sea has yet to significantly abate, although frontloading of cargo has arguably finished. Volumes from Asia remain strong, supporting the case to buy futures, taking advantage of the discount of FFA rates (backwardation) to spot prices.

FBX02 USWC-Asia backhaul futures rates have dropped substantially since July, highlighting value for buyers, but also demonstrating opportunity on what is often an overlooked trade that is highly linked to bulk / containerised commodities US export markets.

Asia-US

On the Transpacific trade, West-East spreads have been the highlight. Following the trading of FBX03 Q4’24 at $7,500/FEU, Q4’24 offers reached an absolute high of $8,000/FEU, a discount versus spot of about 13% to 15%, in line with the settlement of Q4 on 30 August at $8,000. Whilst FBX03 spot prices have remained resilient, FBX01 spot prices into the US West Coast have started to slip, widening the spread between FBX01 and FBX03 (FBX01 vs FBX03 Q4’24 now around -$2,500/FEU).

Whilst FBX01 and FBX03 hold a long-term correlation, this divergence in the spread opens up an opportunity to scoop up value on FBX01, and trade widening spread into the US East Coast. Premiums into the US East Coast factor in the potential for labour strikes on US East Coast ports, compounded by the prior impact of El Niño-related restrictions in the Panama Canal.

This has been reflected in the value of Q4’24; FBX01 Q4’24 slipping -23.84% from 8 July to 30 August (last settling at $5,750/FEU), and FBX03 Q4’24 gaining +2.56% in the same period. Meanwhile, FBX03 Q1’25 remained flat after a slight bump through mid-August.

Asia-Europe/Mediterranean

Factoring most of the volatility from the Red Sea, spot rates have only slipped -12.74% from highs on 16 July. Using Q4’24 as a benchmark, FBX11 Q4’24 has seen a 19.5% move up and down through mid-July, closing flat to its marks on 1 July through to 30 August, settling at $6,550. Despite this, futures markets onshore (INE SCFIS) have lost almost half of their value over a similar period. This presents a substantial opportunity for arbitrage trading, which has already attracted volume from traders out of Asia, reversing the direction from early Q3.

The supportive nature of spot prices should also provide a note of caution for shippers waiting for the spot market to collapse. Fundamentally, the habit of Houthis targeting ships in the Red Sea has yet to significantly abate and the situation in Gaza (and now Lebanon and the West Bank) has arguably become more volatile than earlier in the year.

The plateau of rates has instead created significant value for buyers, with FBX11 Cal25 offers to appear at around $5,000/FEU (versus a spot rate of $7,757/FEU). Meanwhile, the spread between FBX11 and its Mediterranean counterpart FBX13 has reversed. Similar to FBX01/03 spreads, there is an opportunity on the inverted FBX11/FBX13 North Europe/ Mediterranean spread.

Backhaul

A special note for the often forgotten and neglected backhaul routes; we have seen interesting activity in terms of settlements on FBX02 USWC-Asia rates (listed on the Chicago Mercantile Exchange CME). Taking a view on Q4’24 (covering the main export period for US Agricultural goods into China), values have dropped 32.92% since 01 July (from $410/FEU to $275/FEU on 30 August). Whilst linked to a weak US/China agricultural trade, this highlights the volatility in the trade, which is more closely in line with some of the more active futures traders on other commodities markets. Movement on Europe to Asia has also been significant, with FBX12 Europe-Asia Cal25 down 9.75% in the same period, representing a $720,000 move basis a 1,000 lots per month trade.
Source: Braemar