EEX Exchange Looks Beyond Freight to Steer Through Dry Shipping Storm

By Jonathan Saul

LONDON, Feb 2 (Reuters) – Cleartrade Exchange is expanding its commodities business, aiming to boost fertiliser and bunker fuel derivatives activity after a lukewarm reception for its dry freight futures, partly due to turmoil in the shipping market, a top official said.

Singapore-regulated Cleartrade, 52 percent owned by Deutsche Boerse’s EEX, is looking to increase its position in derivatives and other products, such as iron ore, to tap into growing demand for hedging tools in the volatile commodities sector.

“If we had not moved into those products, I daresay we could have shut Cleartrade down two years ago,” Cleartrade Chief Executive Richard Baker said in an interview.

“We have liquidity for fuel oil and iron ore and we are going to grow that liquidity.”

Cleartrade has tried in recent years to increase its share of the multi-billion dollar freight derivatives market, which allows investors to manage shipping rate price risk.

At the same time, the commodities shipping market has slumped further as a wave of ship orders hit the water and worries grow over industrial demand from top importer China, sending the Baltic Exchange’s benchmark main sea freight index to a record low.

“That capacity is now here for the next few years. We are going to see depressed rates for the next two years, coupled with steel production in China in significant decline,” Cleartrade’s Baker said.

Furthermore, Cleartrade has yet to capture more market share from its rival Baltex, owned by the Baltic Exchange.

Baltex and Cleartrade agreed with LCH.Clearnet in 2014 to clear and report freight contracts, and since then Baltex has managed to account for around 70 percent of volumes via that clearing house.

While Cleartrade also works with other clearing houses, SGX and Nasdaq, it has yet to win over sufficient support from Forward Freight Agreement (FFA) brokers. Even though most of the FFA brokers are signed up for Cleartrade, just two of them used the platform daily, Baker said.

“We have learnt the hard way, probably, that dry bulk freight is really not lending itself well in the FFA contract, to moving on screen,” Baker said. “Brokers chose to support Baltex and the Baltic Exchange.”

Before Baltex became a venue for presenting block futures in 2014, it struggled to woo brokers who preferred to trade FFAs by phone or on their screens to maximise commission.

Although Cleartrade has explored a tie-up with Baltex in the past, Baker said he saw no reason to collaborate now.

“Our job really now is preserve choice for the brokers,” he said.

Sources told Reuters in early October that the London Metal Exchange, owned by Hong Kong Exchanges and Clearing , had made an informal approach to the Baltic Exchange to acquire the entire business. (Editing by Louise Heavens)

(c) Copyright Thomson Reuters 2016.