CHINESE financial markets have been set alight by the Middle East conflict and the accompanying closure of the Strait of Hormuz, with shipping-related stocks and futures surging dramatically in the first two days of this week.

Shanghai container freight futures have hit their daily trading limits for two consecutive sessions, fuelled by disruption from the Hormuz blockade and carriers’ aggressive rate hikes.

On Tuesday, contracts spanning six months from April rose by the maximum permitted 18%, following Monday’s 15% limit-up close. Trading volumes simultaneously surged to their highest levels since September last year.

The futures, traded on the Shanghai International Energy Exchange, reflect investor expectations for future China-North Europe freight rates. The daily limit caps for three consecutive sessions are set at 15%, 18% and 20% respectively.

The benchmark April contract reached 1,644.8 points, translating to a spot rate of approximately $2,200-$2,400 per feu. The July contract has exceeded 2,400 points. By comparison, current spot rates are centred around $2,000 per feu.

Linerlytica noted the forward curve has shifted into contango with contracts priced at a premium to the spot rate, “driven by expectations of tightening vessel supply due to Iran-related disruptions.”

According to the consultancy, as of March 2, there are 132 active containerships with a combined capacity of 458,000 teu trapped in the Persian Gulf, accounting for 1.4% of the global fleet. However, these vessels form part of a larger deployment — 3.4m teu in total capacity operating on routes passing through the Strait of Hormuz, representing 10% of the global fleet.

“A prolonged closure of the Hormuz would lead to a reconfiguration of these services and result in a short-term tightening in vessel supply and box equipment as well as increased congestion at Asian ports,” Linerlytica said.

MSC rate hikes spark buying frenzy

The buying frenzy appears to have also been triggered by substantial rate increases announced by Mediterranean Shipping Co, the world’s largest container carrier, according to Haitong Futures shipping analyst Lei Yue.

In a price announcement update dated March 2, MSC unveiled new freight rates from all Far East ports to Northern European, Mediterranean, and Black Sea destinations. The new base rates take effect from March 15 until further notice but not beyond March 21.

The new rates show significant increases across all destinations, with Asia-North Europe slots now set at $4,000 per feu.

MSC and other major carriers have previously suspended Hormuz transits and bookings for cargo to the Middle East region, while imposing substantial war risk surcharges.

Lei said the current US-Iran conflict has caused severe disruption on Middle East routes, providing sentiment support for some carriers to mark up on other trades, although there is no substantive rate linkage as yet.

“However, if the disruption is prolonged or the strait closure exceeds expectations, the escalating supply chain chaos in the region could gradually spread to other routes and create a chain reaction,” she said.

A Shanghai-based freight forwarder told Lloyd’s List that the market is awaiting the Maersk rate announcement for the second half of March.

“If Maersk matches MSC’s price increase, futures will very likely hit the limit again tomorrow,” the forwarder said. “If not, or if the hike comes in below expectations, they could plunge.”

Lei cautioned that market volatility could be substantial in the coming weeks. “The biggest uncertainty now is the inability to assess the progress of the war — it could end next week or it might not,” she told Lloyd’s List.

If the war proves short-lived, the market tailwind from disruption will be limited. Moreover, should the conflict conclude with Tehran yielding to US demands, the resumption of Red Sea transits could also accelerate.

“If the rate increase is just a bubble, what goes up will come down the same way,” Lei added.

Shipping stocks rally across the board

Shipping stocks have also rallied strongly in China and Hong Kong.

China Cosco Shipping Corp, the world’s largest shipowner by fleet size, saw gains across almost all its listed shipping units on Tuesday, led by container arm Cosco Shipping Holdings and tanker unit Cosco Shipping Energy Transportation.

Overall, shipping stocks in mainland China rose 8.8% on Tuesday, trailing only the oil and gas sector, which gained 9.8%, and gas utilities, which rose 9.3%, according to Chinese financial data provider Wind.

Tanker stocks have attracted equally fervent investor interest, albeit driven by somewhat different logic.

Geopolitical factors over the past few weeks, including sanctions and the recent war involving Iran, combined with Sinokor Merchant Marine’s consolidation of the very large crude carrier market, have pushed tanker freight indices to record highs.

However, should the Middle East become locked in a protracted conflict leading to a prolonged closure of the Strait of Hormuz, substantial cargo loss would likely be unfavourable for tanker freight rates.

Tanker rally comes with a caveat

Some 25% of global seaborne oil flows transit Hormuz daily, including 32% of crude, 15% of clean petroleum products and 12% of dirty petroleum products. Around 90% of that crude and naphtha goes to Asia, which in turn sources 60% of its imports from the Middle East Gulf, according to Fearnleys adviser Jonathan Staubo.

“Asian buyers can hardly replace all crude sourcing. Some can come from the Atlantic (bullish freight) and some from (floating) inventories (bearish freight). If Hormuz disruptions become long-lasting, run cuts is the only viable option (bearish freight),” he wrote.

Shanghai-based SWS Research analyst Yan Hai offered a different perspective, suggesting that fortune favours the bold. If oil prices and freight rates rise to sufficiently high levels, risk-tolerant owners will eventually be incentivised to enter the Strait of Hormuz to capture premium profits.

And once actual fixtures emerge, market sentiment will receive another significant boost, he added.

Energy consultant FGE estimated in a report that approximately 4-5 million barrels per day, excluding Iranian volumes, could continue to flow through the strait even during peak war risk periods, which it assumes to be the first two to three weeks of March.

“These are volumes that are typically loaded onto vessels that are not insured with Western/OECD insurance companies, which usually end up in China, India and other non-OECD Asian countries, and therefore might not be exposed to the same level of risk as their Western counterparts,” FGE said.

Including some Iranian oil shipments, the total outflow would be approximately 5-6 million barrels per day, accounting for roughly one-third of total exports passing through the Strait of Hormuz, according to FGE.

Lloyd’s List has reported that a small number of shipowners are considering how to transit the strait at night with AIS signals switched off.

Whether such plans can be implemented remains highly uncertain, as Ebrahim Jabari, a senior adviser to Iran’s Revolutionary Guard Corps’ commander-in-chief, told Iranian state media on Monday that the Strait of Hormuz is closed and any vessel attempting to pass through will be attacked.

Currently, most analysts and observers believe the war and strait closure will not last long, despite Tehran stating it is prepared for a protracted conflict while US President Donald Trump has suggested the possibility of deploying ground troops to Iran.

“To us, a prolonged closure of the Hormuz Strait seems unrealistic (with devastating impact on the global economy) — and surely something the US Administration must (and can) avoid,” said Pareto Securities.