Bullish Dry FFAs and The Chinese Stimulus Package

Hello and welcome back to freight up, the freight and quantity podcast of freight

investor services. My name is Jess and together with Davide, we will be your

hosts as we navigate our major freight and bulk commodity markets. We are back

after our summer break and quite a lot has happened since you last heard from

us. Hello from me as well. I hope that you really had a nice and

relaxing summer. So let's see what we have on the menu today.

We have our regular update on drive freight with Ben Clang. How

pay a resident from Shanghai will tell us more about the iron ore

market and then we'll end up with Archie's meat, who will give us the

latest take on fuel oil. But as usual, if you still remember how

we used to do things, let's first take a look at the latest news and

the index movements over the last two weeks.

In the UK, the unemployment rate fell to 4.1%

from May to July, down from 4.2% in the previous three

month period. Aligning with market expectations, the british economy

stalled again in July 2024, mirroring June's performance

below market forecasts that we're expecting a

0.2% increase. The bank of England keeps rates

unchanged at 5%. In the US, the core inflation rose

by 0.3%, slightly above forecasts of a

0.2% increase, while the annual rate stood at an

over three year low of 3.2% in August,

matching July's figure. The Fed also decreased the target range for

the Fed fund rate by 50 basis points to

4.75% to 5% in September

2024, the first reduction since March of

four years ago. In China,

the industrial production year on year in August rose by

4.5% in August 2024, falling

short of mackere forecast of 4.8% and slowing

from a 5.1% increase in July. Looking at retail

sales, they grew by 2.1% year on year, down

from the 2.7% growth of July, and

they've missed market consensus at 2.5%. The

People's bank of China also cut its short term interest rate by ten

basis points. In Japan, the annual inflation

rate rose to 3.0% in August

from 2.8% in the prior three months, pointing to the

highest level since October 2023. However,

the bank of Japan kept its short term interest rate at around

0.25% in September. This is the highest since

2008, and this was in line with the market

consensus. Now let's have a look at the

market movements of the last two weeks

on the Capes front, the C five TC had a

dipless tweak and the Hindex hit

$25,623 on Tuesday, the

17 September, coming back to

$27,378 yesterday, regaining

some of the lost ground. When it comes to Panamaxes, the index

had been rising for the past two weeks. The P five

TC is up and it was. In fact it was at

$11,852 on the 10 September and

has gained $2,200, hitting

$14,039 yesterday. On the

s ten TC there have been also some positive

news, but somehow it moved less and it went

from the $13,865 of two weeks

ago to the $14,553 off

Tuesday, the 23 September. Smaller ships have been also

hovering below the $13,000 mark. The

HS 70 C went from

$12,840 of the 10 September to

the $12,795 of the 23rd.

Iron ore status gained $1.30

in the week between the 10th and the 23 September and it went up

to $94.60 yesterday.

And now let's talk about drive freight with Ben Klang. Hi Ben.

Hello. How are you, Jess? Not too bad. I'm glad to be back. It's

good to have you back on the podcast as well. Yes, likewise. It's nice

that the routines are coming back. Exactly. Especially now when it's

so busy on the market. Exactly. We've got a lot of stuff to talk about,

so could you please walk us through the key movements in the dry freight

FFA market over the past week and how the different vessel

segments performed. All vessel segments posted weekly gains,

though there was fluctuations throughout last week. The

Cape size market opened on Monday, with October contracts at the

28,500 and and Q four at

27,000, gaining traction later

in the day, driven by increased Pacific activity after

a dip on Thursday. An aggressive rally on Wednesday

pushed October up to 29,750

in Q four to 27,800.

We also saw Friday started strong, but sellers took

control by the evening, with October closing at

29,500 and Q four at

27,950. So far

this week we saw October pushed

up to 30,000 at the close last night and

Q four actually flat at

27,950. Panamax has

followed a similar pattern last week. Monday saw low

liquidity, and despite some early softness it

ended flat with October at 13,550

and Q four at

13,750. Strong demand midweek, especially

in the Atlantic. Routes lift in October rates to

14,250. However, the momentum

faded and by Friday October closed at

38 with Q four at 39

and coming into this week so far the rates has

actually continued to push up, with October closing

at 14 three last night and Q four

at 14 250. The supermax has also saw

gains despite a quieter end to the week. Last week,

Monday opened sluggish, with October and Q four traded down

to 14 one and 13 five respectively.

Bid support grew as the week progressed,

with October hitting 49 and Q four reaching

14 six by Wednesday. Early Thursday. Buying

supported by optimism on the last larger vessels

pushed October to weekly high of

15,225. However, the

market came under pressure post index and softened,

closing Friday with October 14 8th and Q four

at 14 six. So far this week.

Rates bounced back, with October closing at 15

three last night and Q four at 14

nine. So it sounds like it was a positive week across the

board. There was some uncertainty whether these higher prices could be

maintained towards the end of the week, but it seems so far this

week like they've been doing pretty well. That's something to keep an eye

on. Could you please fill me in on what's been happening during that same

period in the physical last week marked one. Of the busiest

periods in the dry FFA market as more participants

returning to trading a total of around

67,860 lots were

traded, with capesize and Panamax contracts attracting

the most interest, averaging 51 00

74,840 lots

per day respectively. Supermax gained

traction, averaging 1600 lots

daily, while handici saw lower activities

at just 100 lots per day. The options

market was quieter, recording

630 lots for Cape size and

1320 lots for Panamaxes.

Open interest continued to rise alongside

steady future prices, suggesting a bullish market

outlook. And on the voyage route, the c five

West Australia to China route saw increased

activities with 6.58 million tonnes

traded on the prompt month September to November

contracts. Thank you very much Ben, we appreciate that.

Thank you Jess, have a lovely day.

Next we have Hao Pei, senior analyst from our Shanghai office who is

back to talk to us about iron ore. Given this significant

PBOC stimulus package, I'm sure we have an interesting segment from you

today. Hi hal. Hi

Jaz. So my first question

is there was a hike in iron ore prices on Tuesday.

So could you tell me a little bit about what happened there.

Exactly previously, like the whole market was very bearish

about iron ore and everything else, every

commodities, but there is a sudden hike for iron

on Tuesday and Wednesday. So that's because the biggest

news of the China are cut by

50 bps. So which lead of

sentiment of entire commodities sector

and the market was expecting a five to

ten basis points drop. But

however it came out like 50 basis points,

which was way more than expectation. And

following this cut, there was also a cut on seven day ripple

and down payment on second home buying and mortgage rate down

on first home buying as well. And standing on the timestamp

of a global interest cut after monetary tight for four

years. The growth is predictable. However, no guarantee on

the weather. This should sustain that should be sustainable.

So that's why we see a slight drop from the top of

iron ore when it's. When it was 98

for the October contract and it's dropped by $2

to 96 by closing. But I think

one thing for sure is the volatility is growing for iron ore

during this week. So was there any fundamental change

in the market apart from this macro news?

An iron ore market saw improving pit iron

usage in China. I think that's the biggest fundamental

change for the market. The pig iron

production level was decreasing and decreasing through

July and August and even early September. But now

it's slightly improving from mid September. And

although the growth was slower than past year during the same period

of time. But I think it is better than early

September. At least some eastern China mules started to

increase price during the bearish market

from late last week. And iron ore

physical buyers were also targeting some specific levels

to affirm the price up. Like for example

88.4 for pbfs. We've

been seeing like more than five ligands during the past

five weeks. So I think political buyers have a

sense that the iron ore will grow up well. In

other words, the iron ore is standing

upon such levels. And for physical coke in China,

there were two rounds of rebound already and

fob coking coal from Australia saw tight

supply in the lake as well. I think in

general the demands and supply relation in ferrous market

were recovered during the past month after a huge

price drop. And then iron ore and coking coal

valuation became slightly low after the drop

and there is demand to recover this lower

valuation right now.

Thank you very much, Hal. Thank you,

Jess.

And now let's talk about fuel oil with Archie Smith. Hi Archie. Hello.

It's good to be back. Yeah, it's been, been a long couple of months.

I think people need their fuel oil. News 100% they do. So

crude has been super choppy. Why has it been down and now

coming back up? So if I talk sort of from

September, we sort of beginning of the month, we were really, really

coming off hit lows of like 68, 68 on

the front. November future. This was spurred

by sort of general economic woes

globally, particularly in China. You know sort of chinese and us

economies very much drive the crude price. So when theres weak data out of

those guys we often see it affect crude prices.

Chinas been pretty consistently poor out the back end of

the pandemic seems like theyve struggled to

fully recover. So yeah there was lows there. Market

also completely brushed off the fact that OPEC had decided to pull

back their, basically they were going to start

trickling supply back into the market from October. They've pulled this

back two months, market completely brushed it off and continued

to really come off. But then the last

week or so it did find a bottom and

then support has definitely been found with chinese government

introducing some sort of schemes and methods to try and

boost their economy. As well as this you've got some short term

supply support coming from storms in the US Gulf. A lot of the

oil majors, your BP, your shells, they've closed down operations

and pulled a lot of offshore workers, evacuated them if you

will, because there was already one storm and I've heard there's another

storm inbound. So that's offering a little bit of short term support.

And another thing you've really got to sort of

question is the tensions in the Middle east. Obviously that's all been re sparked

again. As it is there is no real kind of

threat to physical oil supply because none of the nations who are directly

involved, your lebanons, your Israels, are sort of large oil

supplying nations. But obviously if you look at the surrounding areas, all it takes is

some sort of involvement for a more major power and physical supply could

really be in trouble. So I think, yeah, the market's definitely looking at that as

well. How about the low high sulfur

oils? Have they shared the same kind of volatility? Yeah, fuel has been absolutely

crazy. I do have some numbers written down on my sheets of where things last

traded, but I'm sure in the five minutes it's taken for me to leave my

desk and come over here, they'll be very, very different numbers. High sulfur east west,

which is the difference between the high sulfur in Singapore

against Europe that is now trading deep into the negative territory. It's

trading actually at like minus ten in the front month, which means that

the european high sulfur grade is at a $10 premium to

the Singapore. Fundamentally we're not hearing much other than

there's supposedly been quite a shortfall

of vessel arrivals in north northern Europe. So

that's why the european stuff is kind of holding a bit stronger against the Singapore

poor stuff. But I think a lot of it as well is sort of

paper marketplace. And I mean, when we were tumbling yesterday down to like minus

ten levels, I think a lot of it was stop outs as well, which kind

of snowballed the drop. And then looking at

the low sulfur, it's really kind of been a roller coaster at the minute. We

are coming back down off of highs. I think a lot of it

is profit taking, particularly front spreads, front cracks. But I think another thing

to consider as well is at this time of the month, you do get a

lot of guys who have long positions in the front month

now starting to roll. We've seen that today. A lot of selling in the

Oknov Singh 0.5 spread, a lot of selling in the Oknov euro

spread. And as I said, that's just kind of oil majors, big shippers, etcetera, etcetera,

producers who are rolling their opposition into the Nov at

this time of the month. And at such high levels, it's a good opportunity for

them to do so. So with so much selling interest, it's really sort of smashed

the market down. But who knows, the next five minutes you might shoot back up

again. It's all over the place. All right, well, thank you very much for that,

Archie. I think I'm going to have to leave you to run back to your

desk at sounds. I. Yeah, no worries, no worries. It's

good to be back. It's good to have you back. And that's it for this

week. Make sure to subscribe by clicking the subscribe button on wherever you get your

podcast. Also make sure to follow us on LinkedIn or get signed up to our

app FIS live to make sure you never miss any freight and commodity analysis from

FIS. Thanks again for joining us and see you in two weeks time on

FIS's Freight and quantity podcast. Freight up, freight

up.