Soaring dry freight boosts derivatives market-Baltic

LONDON, May 23 (Reuters) - The global freight derivatives market for shipping dry commodities grew by four percent in Q1 2007 versus Q4 2006, driven by soaring physical seaborne freight prices, the Baltic Exchange said on Wednesday.

Citing figures from the Freight Forward Agreements (FFA) brokers' association, the London-based exchange said lots traded grew from 313,945 to 326,250 in the period.

Physical freight prices for raw materials spiked in the first quarter and have subsequently struck records on crippling port congestion and raw materials demand from China and India.

That price volatility has driven growth in the freight derivatives sector as companies seek to hedge against soaring freight costs for goods as diverse as grains, iron ore and coal.

Big banks, clearing houses, and even hedge funds have entered the market in the last couple of years, adding to the growing number of commodity trading firms and shipping companies that trade freight futures.

The exchange, which estimated the dry freight derivatives market to be worth about $50 billion in 2006, also reported a 39 percent jump in cleared volumes traded to 44,635 lots versus 32,200 in Q4.

Cleared traded volume accounts for some 14 percent of the freight derivatives market, the exchange said.

The Baltic Exchange's Chief Executive Jeremy Penn said: "The continuing growth in volumes is clearly good news for all market participants and as the volume data timeseries gets longer, it is making the growth in the market visible."

Penn was alluding to the third set of global trading statistics in derivatives published by the Baltic. Experts say more transparency is needed in the sector if it is to grow to a similar size as more mainstream derivatives markets.

With 550 international members, the Baltic Exchange is the world's only independent source of maritime market information for the trading and settlement of physical and derivative contracts.