Freight Investor Services says it has brokered the first futures trade on the SGX Platts Marine Fuel 0.5% FOB Singapore Index.
The trade was concluded for the March 2020 contract at $503 per tonne.
‘The volatility and price risks for shipping companies as we approach the start of the IMO2020 regulations are putting intense pressure on the margins that shipowners will earn next year,’ said FIS Founder John Banaskiewicz.
‘On a Brazil-China voyage at $21.90/tonne, the 0.5% fuel component represents 56% of the freight rate, an incredible $6.60/tonne premium compared with using 3.5% fuel. On the Australia-China route at $9.80, 2020 compliant fuel would be 43% of the freight rate, a $2.70/tonne premium over 3.5% sulphur fuel.
FIS notes that the fuel oil paper market, used for hedging bunker fuel exposure, is very liquid but shipowners are still a small part of the liquidity and can often get overlooked because of their trade size requirements.
The company, which offers contracts in all sizes from 10 metric tonnes upwards with clearing via CME, says that usng fuel oil swaps can help owners to easily and cost effectively fix the price of future bunker oil purchases. They can also be used by a wider range of market stakeholders including charterers, traders, physical suppliers, and financial institutions.
‘We are delighted to be the first broker to trade the SGX Platts Marine Fuel 0.5% FOB Singapore Index Future, enabling our customer base to hedge their physical fuel oil exposure,’ commented Luke Longhurst, head of Fuel Oil Futures at FIS. ‘
‘Any owner with a price exposure to fuel oil is looking at strategies to better manage the risk associated with bunker price volatility and FIS has responded to this need by providing smaller volume contracts for specific hedging needs.’