Ahead of the FFABA Tanker Freight Derivatives Forum hosted by the Baltic Exchange and FFA Brokers Association, Baltic Briefing sits down with the new Wet FFABA Chairman, Angus Procter.
In the first of a two-part interview, Angus discusses what he hopes to bring to the role and gives his views on the Wet FFA market.
Welcome Angus. To start, what do you hope to bring as chairman of the Wet FFABA?
With 2020 fast approaching and big structural changes made to parts of the market around the corner, I, along with the Baltic Exchange, hope to be able to help keep broker, trader and new entrants informed about any impending changes that will affect the trading market.
We saw a strong uplift in dirty FFA volumes, particularly during Q4 2018. What caused this growth and what are your expectations for 2019?
2018 was special in that we saw a lot of open interest two years out. Most years, getting Cal+1 to trade is the aim, but Cal+2 had an obvious story this year that traders started to take more of a view on as we got into Q4. Front-month volumes were obviously strong as well, due to the fact that we got some volatility back, and the market had to manage some already large exposures. Volatility breeds liquidity, and from that brings more volume. As long as the market continues to stay interesting on the spot market in 2019, I see no reason why these volumes will dip, but if we see this year what we saw in the first five months of last year, then the front volumes will dry up a touch, with more emphasis put on the months leading up to, and at the start of, 2020, as that q1-20 is a tough one to call at the moment across the board.
Where do you see the greatest potential for growth, clean or dirty?
I still see the dirty markets having more of a drive this side of the New Year. There are more counterparts looking at the dirty side of things, but hopefully, as the scrubber story becomes more prevalent on both sectors, owners will start coming out of the woodwork on the clean side too. Purely on a catch-up basis, I would hope that clean comes into its own, with a look at open interest in 2020 for tc2,5,6,14, there is plenty of room for growth here.
Has the perceived complexity of tanker FFA trading (WS etc.) held the market back?
The age-old argument of WS or $/tonne quoting will always be there. If we get rid of WS, then we get rid of the link to the physical, if we stick with it, then some counterparts who aren’t familiar with the physical can struggle to grasp it. But, we are at an age now where we have everything at our fingertips for current year trading, so can tailor the way we quote prices to different players, whether it be WS, $/tonne or $/day. So I don’t think our pricing structure should hold this market back, we have all the tools to push it on, including a web-based platform that converts WS and $/tonne numbers into live earnings that move throughout the day due to a live fuel curve. This is available to a wide audience/anyone with a login which goes a long way to de-mystifying the market.
How do you see the upcoming Sulphur Cap 2020 regulation impacting the FFA market?
With different views comes opportunity, and there is plenty of opportunity here if you think you know better than the person across the table from you. The Sulphur Cap is still not a sure thing when it comes to its pricing structure, and if it were going to be an issue then there wouldn’t be as much open interest as there is already for 2020.
How do you hope to attract new entrants to the market and where do you see new growth coming from?
I think owners are lacking cover for MRs and LRs vs what we see on the dirty side of things… the 2020 debate is getting more people thinking about paper to manage freight rate risk. Obviously, a stronger rates market in 2019 would help that cause too, that would make attracting new entrants easier, but its far from guaranteed. The Eastern players have come into their own a bit more in 2018, but with the introduction of these USG VLCC and Aframax routes recently, we have seen more questions come from the US. That pool is relatively untapped in recent times, but with a few more routes relevant to their needs, you should see some decent growth coming from across the pond this year.
What added value do the brokers bring to the market?
We as brokers have a duty to make sure all trades are executed at the best price and in as fairer fashion as possible, and will always standby that. We are there to bring to the attention of traders any added value that they may have missed. We are also responsible to bring in new counterparts and increase liquidity as best we can to allow this market to grow.
Angus will be speaking at the FFABA Tanker Freight Derivatives Forum on 25 February as part of a panel discussion on Sulphur Cap 2020, volumes vs cargo flows, new contracts & benchmarks updates. For more information click here.
About the FFABA
Chairman (Wet): Angus Procter (Braemar ACM-GFI)