Freight Investor Services presents. Freight (FFA) & Iron ore swaps (IOS) trading overview. Singapore - November 2009

Transcription

1 Freight Investor Services presents Freight (FFA) & Iron ore swaps (IOS) trading overview Singapore - November 29

2 If you think safety is expensive, try an accident Risk Management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events.

3 Forward Freight Agreement (FFA) & Iron Ore Swaps (IOS) SPOT TRADE Spot Hybrid pricing Benchmark PAPER FFA& IOS& STEEL DIVERSIFY THE TOOLS TO COMBAT PRICE RISK Having the flexibility to trade on the spot market when prices are low and having the option to lock down forward rates via the use of derivatives and other instruments when prices are high Defining optimal risk management : the ability to use a basket of those tools & the commitment to consider all facets of risk Hence, fully trading on spot market or solely using a benchmark system are both not viable for managing price risk optimally

4 Correlation between iron ore prices & freight prices Baltic Capesize Index Baltic Panamax Index Iron Ore Fines cfr China 62% Correlation Baltic Capesize Index Baltic Panamax Index Iron Ore Fines cfr China 62% 88% 88%

5 Correlation between iron ore prices & steel prices Chinese Hot Rolled Coils Iron Ore Fines cfr China 62% Correlation Chinese Hot Rolled Coils Iron Ore Fines cfr China 62% 83%

6 Correlation between SHFE Rebar, Wire & TSI Index Mar-9 Apr-9 May-9 Jun-9 Jul-9 Aug-9 Sep-9 Oct-9 Rebar Feb Wire Rod Feb TSI Correlation SHFE Rebar Feb SHFR Wire Rod Feb TSI 8% 78%

7 Nov-9 Jan-1 Q1-1 Q2-1 Q3-1 Cal 1 IOS the new kid on the block Peak at USD$192 Iron Ore Prices Freefall post Beijing Olympics Current Forward Curve Revival under Chinese stimulus plans

8 Recent IOS Forward Curve Comparison Spot Current Month Front 1 month Front 2 month Front 1Q Front 2Q Cal 1 9/11/29 2/11/29 26/1/29 19/1/29

9 IOS vs Cape 4TC Forward Curve Comparison Spot Current Month Front 1 month Front 2 month Front 1Q Front 2Q Cal 1 Cal 11 Cape 4TC Iron Ore Swaps

10 Suggesting the following : dry Bulk Order book 15 Capesize (no.) 15 Panamax (no.) Scheduled Orderbook Current Fleet Slippage rate for 1H9 approximately 48% If no slippage, equates to 62% increase in global fleet dwt However, expect slippage rate to be nearer to 22% Hence, equates to increase in global fleet dwt of approx. 47%

11 Active IOS counterparties (*estimate) Producers 5% Traders 25% Financials 7% Shipping related 1% Traders 3% End users 1% Financials 45% Producers 5% End users 25% Traders 25% Financials 3% Shipping related 15% Producers 5%

12 The Shift to OTC Clearing FFA Volumes (in lots) IOS Volumes (in mt) *est *est Cleared OTC Cleared OTC

13 Iron Ore Volumes 6 29 Post Clearing Volumes on SGX & LCH (Settlement Index: The Steel Index) The cleared volume since start up is approx 5 Million mt. Volumes (week 4) was 17,mt Volumes (week 45) was 55,mt

14 Size of FFA & IOS Market Freight Physical mmt FFA mmt Iron Ore Physical mmt IOS mmt Oil : Power: Coal: Dry Freight: Iron Ore: 7 to 1 times the nominal trade volume 5 to 1 times the nominal trade volume 3 to 5 times the nominal trade volume 1.3 to 1.4 times the nominal trade volume Only around 1.5 to 2 percent the nominal trade volume!

15 Iron Ore & Steel Derivative Association (IOSDA) IOSDA is an newly set up organisation for participants in the iron ore and related derivatives markets worldwide Raise awareness and promote the trading of the iron ore and related derivatives The first two meetings were hold in Singapore and London on 25 th September with nearly 6 market players joined An Executive Committee consisting of representatives from Cargill, Barclay Capital, Freight Investor Services, Noble Group, SGX, Citibank, LCH. Clearnet and Spectron The Association has after just one month since setting up now 1 corporate members, with many more preparing their application documents info@iosda.com

16 The range of FIS services: Derivatives & Solutions Iron ore tools Daily iron ore snippet - lunch time Asia Daily Iron Ore Report - London close SHFE rebar &wire rod futures report - 3.3pm Asia time Blasters- Daily Freight tools Daily FFA reports - London close Blasters- Daily

17 FIS Contact Details Please contact Gabrielle Richou & Daniel Thompson Tel: Fax: