Dry bulk FFAs: Market prepares to move open interest from P4TC to P5TCa

The Baltic Exchange has been working closely with the Clearing Houses (CCP’s) EEX and SGX to transition open interest settled on its discontinued Panamax 4TC (P4TC) index to its P5TC index. 
 

SGX and EEX will suspend their P4TC 2028 calendars, which have zero open interest, on 31 July 2023. The CCPs are working with their clearing members and the FFA Brokers’ Association (FFABA) to transition open interest in P4TC calendars 2027 and 2026 to P5TC. The P4TC calendar contracts will be suspended immediately on completion of the transition. Open interest for 2025 will subsequently be addressed. Fees for these transactions will be waived by both CCP's and FFABA brokers.
 

Baltic Exchange Chief Executive Mark Jackson commented:
 

“Although no longer reported independently, most Panamax related FFA trading still happens on our P4TC index. Whilst we have established a differential between the two indices, in the longer term it makes sense for traders to settle directly against our P5TC assessments. We want to support an orderly transition to the P5TC.” 
 

In January 2020 the Baltic standard Panamax vessel became an 82,500 dwt type and the weighted averages based on five routes. A fixed differential of US$ 1336 was established between P4TC and P5TC in April 2021 and since then the Baltic Exchange has been reporting P4TC as a differential to the P5TC rates. 
 

Welcoming the initiative, John Banaszkiewicz, Chairman of the FFA Brokers Association said:
 

“Ships and their routes evolve and it’s important that the Baltic’s indices reflect this, which is why these types of changes happen. Currently, the Panamax 5TC market is a mirror image of the physical market, based on panellist returns. The 4TC offers no transparency: it remains a number differential. Given the number of index-linked physical vessels fixed on the 5TC assessment, it is necessary for the FFA market to make the transition and adapt accordingly.  Looking ahead, we anticipate that future modifications to vessel specifications will be automatically implemented following consultation with the marketplace.”

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