Funds and Private Equity Seen Spurring Freight-Swaps

Hedge funds and private equity firms drove a surge in freight-swaps trading in the first quarter amid signs the shipping industry is starting to recover from a slump, according SSY Futures Ltd., a derivatives broker.

Trades amounting to about 350 million metric tons of cargo took place in the period compared with 200 million tons a year earlier, SSY, a London-based unit of Simpson, Spence & Young Ltd., said by e-mail today. The figures, the highest for a first quarter since 2008, would equate to about $4.2 billion in nominal terms, from $1.4 billion a year earlier, Duncan Dunn, a senior director at SSY Futures, said separately.

China’s record commodities demand and slowing global fleet expansion helped rates for ore-carrying Capesize ships to more than double. Vermillion Asset Management, a unit of Carlyle Group, was among hedge funds that increased trading of the contracts, SSY said. The swaps are now almost all handled by clearinghouses, curbing counterparty risk, Dunn said.

“The industry is starting to bring increased pricing transparency with a almost all trades being cleared and that’s starting to attract more financial investors,” Dunn said by phone. “There are also signs of a strong cyclical improvement and that may be improving sentiment.”

The Capesize sector accounted for around 54 percent of recent FFA volume, according to SSY. Panamax ships, the biggest to pass through the Panama Canal, comprised 34 percent of trades while smaller Supramax and Handysize FFAs together represented about 12 percent.

The price of iron ore delivered to Qingdao in China was at $112.76 per ton on March 28, its lowest for the time of year since 2010, according to data from Metal Bulletin compiled by Bloomberg.

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