FIS, a major broker of freight and commodity derivatives, has made the first renminbi (RMB)-denominated forward freight agreement (FFA) trades. They have spent the last 12 months working with the Shanghai Clearing House to foster the launch of an RMB-denominated dry freight derivatives contract, based on Baltic Exchange indices.

The very first RMB FFA trade was made on 10 December on the December Panamax 4TCs contract at RMB45,000, equivalent to $7,150/day, between FIS as buyer and local broker Windely as seller.

With annual imports of dry bulk commodities equivalent to 44% of seaborne trade, Chinese exposure to freight rate volatility makes it ideally placed to hedge risk using cleared cash-settled swaps.

However, until recently, currency controls have made Chinese participation in dollar-denominated markets almost impossible with privately-held Chinese companies wishing to trade forward freight agreements (FFAs) doing so via overseas offices and foreign currency accounts.  With the removal of that restriction the market is set to grow rapidly.

FIS is fully licensed in China to broker these swaps, and they believe that, in time, RMB swaps can be developed into an arbitrage market to dollar-denominated exchanges outside China, creating even more trading potential.