Anticipation Grows as Red Sea Shipping Routes Expected to Recover; Shipping Index Futures Experience Across-the-Board Decline – Cause for Fear or Opportunity?

Finance Connect, December 25 – Transitioning from a consistent upward trend to an overall decline, today's trading session for shipping index (Europe Line) futures signals a notable reversal.

In terms of market performance, the main contract EC2404 saw a decline of 1.38%, while the second main contract EC2406 experienced an 8.37% drop. Distant-month contracts witnessed even larger declines, with EC2408 falling by 9.84%, EC2410 by 9.30%, and EC2412 by 8.48%.

Yang Hong, Senior Researcher at Ping An Futures, believes that the bullish sentiment has weakened based on market performance, with a notable reduction in open interest across all contracts, indicating a significant reduction in positions.

According to Wind data, on December 25, the trading volume for all shipping index (Europe Line) futures contracts was approximately 706,400 lots, with a total open interest of about 155,100 lots (a decrease of nearly 61,500 lots compared to the previous period).

Gao Cong, a researcher at Huatai Futures, mentioned that although there is a significant reduction in open interest for all contracts, the closing declines for all contracts are narrower compared to intraday, indicating a pronounced disparity in market sentiment between long and short positions.

From a news perspective, shipping giant Maersk stated on Sunday that the company is preparing to resume shipping operations in the Red Sea and the Gulf of Aden (previously subject to joint escort operations by countries like the United States). Maersk also mentioned that more details would be announced in the coming days. However, the market, based on the logic of increased operational costs and a substantial reduction in effective capacity due to container ships circumnavigating, faces short-term challenges in the event of a resumption of Red Sea shipping. Maersk also explicitly stated that, depending on changes in the security situation, measures to divert ship traffic might be implemented again.

According to Yang Hong, the main reason for the weakened bullish sentiment in today's market is the growing expectation of the restart of the Red Sea shipping route. He noted that Maersk had previously indicated the use of a route around the Cape of Good Hope, so Maersk's latest statement surprised the market. It also increased the market's expectations for the possible resumption of the Red Sea shipping route. If the Red Sea route resumes, the driving force behind the rise in freight rates will significantly weaken, leading to a substantial decline in market bullish sentiment.

However, he also emphasized that the current situation in the Red Sea region remains uncertain. On one hand, Houthi attacks on merchant ships are intended to target Israel, and with no easing in the Israeli-Palestinian conflict, Houthi actions are not expected to cease.

On the other hand, Maersk's statement is based on the U.S.-led "Prosperity Defender" escort operation. However, related information indicates that the progress of this operation is not smooth, with Italy, the Netherlands, and Spain stating that they will not send warships, France explicitly stating non-participation, and major regional powers such as Saudi Arabia and Egypt remaining uncommitted. The Red Sea region still faces significant uncertainty, making the resumption of the Red Sea shipping route uncertain.

Gaza conflict spillover

Gao Cong believes that Maersk's latest statement has disturbed current expectations, but three factors from the real world may support a relatively strong trend in shipping index (Europe Line) futures.

Firstly, spot prices remain relatively strong, with significant futures discounts. Shipments from the demand side during the small peak season before January 15 are expected to provide support to the futures market.

Secondly, the easing of the Red Sea situation is expected to be complicated. Houthi forces in Yemen issued another warning to the United States on the 24th, and concerns are raised in the market about whether the "Prosperity Defender" escort operation can achieve the expected results.

Thirdly, high-frequency data shows that the circumnavigation of container ships has indeed occurred. Container ships arriving in the Gulf of Aden and those passing through the Suez Canal have shown significant declines since early December.

"In the short term, there is fierce competition between market expectations and reality. The shipping industry is susceptible to unforeseen events due to its characteristics such as long routes and multiple transportation stages. Currently, there are numerous uncertainties affecting the Asia-Europe routes, resulting in significant fluctuations in freight rates. The announcement of unexpected news in the future could lead to a substantial increase or decrease in this commodity. Traders are advised to assess risks, control positions prudently, and participate in a rational manner," highlighted Gao Cong. He mentioned that exchanges have closely monitored the EC market situation in recent times, taking prompt risk control measures to mitigate market heat. In this scenario, futures companies and their members are encouraged to strengthen risk analysis, track customer services diligently, and enhance both self-risk control and customer risk alerts.

Yang Hong also pointed out that due to the multitude of uncertain factors influencing current shipping spot prices, there is a significant impact on market expectations, and shipping prices are prone to substantial fluctuations. This, in turn, transmits to the futures market, causing volatility in EC futures prices. Market participants are advised to assess risks prudently, control positions appropriately, and engage in the futures market with a rational mindset.

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