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IMO 2020 sulfur cap expected to lead to higher freight rates: SGX event

The International Maritime Organization’s 2020 sulfur cap on fuel oil will result in higher vessel operating costs, which are likely to be passed onto freight rates, according to a Singapore Exchange seminar in London last week.

The Baltic Exchange will advise on the time line and plan to assess the resultant impact on Baltic freight indexes at the Singapore Maritime Week 2018, the SGX said in a note Wednesday.

The SGX seminar attracted 40 traders, banks and funds, with Mark Jackson, CEO of the Baltic Exchange, and Jeffery Yao, managing director of Profision Shipping Capital Management Ltd, among the speakers, the SGX said.

The SGX event highlighted demand growth in China for steel and steel raw materials, the potential for coking coal supply disruption due to Australian rail hauler Aurizon’s plans to limit rail operations, and China’s economic policies.

“As unsustainably low FFA prices in the last few years have led ship owners to subsidize the cost of operating a vessel, the market expects that this will be priced into freight routes and passed onto consumers,” the SGX report said.

The SGX said investor interest in trading freight has been growing as freight prices slowly recover after five years of low rates. The exchange cited Breakwave’s FFA ETF as a new investment product with exposure to a basket of freight prices.

“Increasingly, the market is moving away from a siloed view of commodities to a paradigm where freight sits in the center linking up various commodities across geographies,” SGX said.

Colin Hamilton, managing director for commodities research at BMO Capital Markets, and ICBC Standard Bank Chief China Economist Jinny Yan, along with William Chin, head of commodities for the SGX, and Janice Yap, iron ore product manager at the exchange, also presented at the seminar.

The SGX offers futures and derivatives clearing in iron ore, coking coal and dry bulk freight among several commodity and financial asset contracts.

Source: Platts

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