China's steel restrictions and a new lithium contract

Freight up. Hello and

welcome back to Freight up. The freight and Quality podcast of Freight Investor

Services. I'm Jess and together with Davide, we'll be your hosts as we navigate

our major freight and bulk commodity markets. We are here with another episode

and a couple of special guests this time. Hello from me too. So

today we have our experts Haupei and Archie Smith that will give us

their analysis respectively on the state of the iron ore and fuel oil

markets. But we will also be talking about battery metals as we

are going to be joined by Abex Commodity Futures Exchange and

Clearinghouse Chief Commercial Officer Joe Raja and the

Head of Battery Metals, Sascha Lefschitz. As usual, let's start

with the macro news of the past two weeks.

The US unemployment rate rose from 4.1% in February,

up from 4% in January, slightly exceeding market

expectations. Core consumer prices, which exclude food and energy,

increased by 0.2% month over month in February, down from

a 10 month high of 0.4% in the previous month and below

market expectations of a 0.3% rise on an

annual basis. Core consumer price inflation eased to

3.1% in February, down from 3.3% in January

and below the anticipated 3.2%. In

China, consumer prices fell by 0.7%

year on year in February, surpassing market estimates of a

0.5% decline and reversing a 0.5% increase in

January. This marked the first instance of consumer deflation

since January 2024 and is driven by fading

seasonal demand following the Spring Festival in late January.

Industrial production still in China expanded by

5.9% year over year in the combined period of January and

February, exceeding market forecast of a 5.3%

rise, slowing from a 6.2% growth in December.

Retail sales grew by 4% year on year in the first two

months of 2025, up from 3.7% in

December and in line with market expectations. This was the

strongest retail Turnover growth since October 2024,

supported by increased consumer spending during the Spring Festival

celebrations. But what are the

market movements of the past two weeks? Lets have a

quick look. Capesize have shown a steady rise over the past

two weeks, with the C5TC climbing from

$16,328 on the 4th of March to

$22,507 yesterday. Panamax's

also saw gains increasing from $9,218 two

weeks ago to $9,578 on the 11th of

March and further to $12,643 on the

18th Supramaxs experienced a more mixed trend with the

S10TC dipping from $9,035 two weeks ago

to $8,890 on the 11th before

rebounding to $10,313 on the 18th of

March. Lastly, also handy sizes have two positive weeks

with the HS7TC rising from

$9,860 on the 4th to

$10,412 yesterday.

Next we have here to fill us in on the ferrous market over

the last reporting period. So Hal, there's been a lot of movement

recently. We've seen sharp rebounds then quick pullbacks. What's been

driving this movement? There is a bit of volatility

on iron ore market instead of buck wrench

back and forth for a couple of weeks. So

basically the iron ore price were surprised

by the news of crude steel restriction in China

and the rumor said there were about 15 million tons

of steel cut which is equal to

4.2% of the total production based

in 2024 in China. Then the market priced in this

rumor and since there was hardly any

source to prove and the news was

on and off the market for many weeks in fact so

which drive the iron ore price back again and from

macro side I think both US equity market

and the dollar stabilized after significant

corrections but there is new Mideast

conflict we see some escalation on it and

the gold price exceeds 3040 now per

ounce so it's hitting all time high

and overall risk hedging trades were once on the

rise and on China's side the government has begun to

increase support for trading goods and taken

a couple of practical measures to stabilize the

stock market and the Shanghai campus sites

index opened at 3430 points on

Monday hitting a new year high. However I think

the bearish side was the floor area of newly

started buildings decreased by 29.6 with

a significant decline of 6.6.

So from market perspective the impact outweighed the

positive effects of narrowing decline

housing sales and accelerating in

infrastructure growth and I think on the fundamental side

the arrivals of iron ore were huge last week

and however offset by the fast decreasing port

inventories and demand side should be sustainable as pig

iron should pick up from this week after environmental

curve and after China conference and as well as

heavy pollution weathers and in general I think the market

was back to peace and however physical volume

peaked as the coming of China construction season. So I

know, I think I know should see some floor area near

95 to 97 instead of all the way to the

Tops. All right, got it. So there's some mixed

signals there. So if we move towards

coking coal, do you think this recent price correlation is going to

last? The Coking coal market internationally

was tanking all of the globe during the past

week. I think from China's side it is hard to generate

some extra buying interest on the international

side because of massive clearance calls from

Mongolia border and for Indian

end users they were generally not addicted to the

PLVs because of the grade is not they normally

use into the blast furnish but uh, I think

Australian miners could only rely on pmv so

I think the general links on March and April were crowded and a

glove was significant on the

Australian coking coal market. So in general fundamental side it's

bearish. However I think the valuation is low

and some of the Indian mules indicated that they will

buy if the index level around 160 to

165 which is only $5 below the

current level. So I think the price floor is coming

soon. I don't think the price is going like there'll be a huge

directional movement in the next few weeks. Okay,

interesting. So something for people to look out for then?

Yeah, I think it's worth to see if there are

any spectral freights on the PNB market from

Indian end users in the coming days. If there are

like we should probably focus on how much volume on it. If the

volume is becoming higher then probably the real demand is

coming. I think that's all. We should take a look.

All right, thank you for that. How. Thank you.

And now let's talk about fuel oil with Archie's Meat. Let's look at the crude

market. I mean like has been, the activity has been like quite range bound over

the past weeks. So maybe you can tell us more about the

reasons behind this kind of like range bound activity. Yeah, sure.

So front month Brent futures been pretty stuck between the 70 and

72 mark. Just sort of been playing ping pong between those two levels.

Admittedly this morning we have just slightly sort of dipped under that

70 level. Sort of 69.90 around there. Yeah overall those

are sort of levels we're testing at the minute. Everyone's just sort of looking

to a few factors. I mean obviously you've got the Trump Putin

calls that are happening. I know there was one yesterday regarding

Ukraine war truce. It looks as though there's

steps in the right direction but ultimately a full on sort of end

to the war seems quite a way off. I think even sort of as that

progresses I would Say myself that Ukraine, Russia is so sort of well

priced in to the market anyway that I think to see like a major

and sort of lasting price movement in crude coming off the back of that,

it would have to be literally an all out end to the war. So something

as dramatic as that to sort of affect the prices there's forcing us down a

little bit. You've got all the sort of trade protectionism that's come in in the

last weeks all across the globe. Obviously Trump spearheaded that and there's

been a lot of retaliation from China, Canada,

Europe, trade protectionism, tariffs, etc. Overall is pretty

bearish for global oil demand. So that's sort of one of our bearish

factors. But then propping us up I suppose you could

say is again tensions again in the Middle East. I know

obviously there was a ceasefire in Gaza that seems to have ended

unofficially. I know there were some strikes and as well even in Russia, Ukraine,

while these talks are going on, there's still strikes either side. So the tensions are

still there keeping us up. And the sort of trade protectionism and ceasefire talks and

that is on the bearish side. So yeah, I mean in that being

said, I'd say overall still pretty bearish because if you look at the end of

February we were trading around 76, $77 a barrel and then

we sort of sharply dropped at the end of Feb into

the start of March when OPEC said that they was going to still go ahead

with their output resumption. Pretty range bound. I think we need something

to happen to, to break us out of this little $2 bracket at the

minute. And looking more specifically at the

fuel oil, you have mentioned some of the news. I mean like it's very difficult

sometimes to actually, you know, like follow up like all the things that are happening

because they seem to be happening all at the same time. Quite a lot of

that stuff is happening. Yes. And then of course like it has an influence on

the market. So like on a fuel oil, how do you see the market

reacting to this flurry of different news? I mean overall

fuel oil is soft at the minute. It really is. I mean if you're looking

at like the 0.5 flat price that's all got a 4 handle now

sort of front month, Singapore 0.5 is trading like 490

bucks and even sort of 0.5 spreads. Yes, the curve is

backwardated but not massively, particularly in the same

point 5. The April, May 6.5 spread is so tight at the minute it's

bouncing between $1 and $1.50 which is quite narrow in terms of

massively, especially historically for a front month spread like

that. Yeah, you're looking at, I mean, I don't know this sort of average off

the top of my head, but normally like 8 bucks, 9 bucks, 10 bucks. So.

And it's normally what we see is when it gets this low you get people,

okay, this is a great time to buy it at sort of $1, this type

and then it breaks out. But we're really, I don't know, people seem to be

sitting on their hands. So wait and see approach. This is what I think so

I really do think so. I don't think anyone wants to be the first one

to make the move when there's sort of so much up in the air with

regards to global conflicts, global trade kind of thing. And obviously global

trade really does directly affect the fuel markets because end of the

day it's the fuel that's going in the, into these ships that are moving

commodities around the world. Yeah, but yeah, I mean the

cracks are coming a little bit softer. Obviously the flat price offs the east

west Both on the 0.5 and the high sulfur is tightening up. So

bit of a soft market. Yeah. Then again you could argue

a great opportunity to take advantage of sort of back end low prices in

the back end Q4 Cal 26 etc which we are seeing some of the shipping

guys do while it's so low and hedging their exposure for backend stuff whilst

it's so cheap. Thank you very much Ash. Thank you, it's been a pleasure.

So next up we're joined by Joe the COO and Sasha the head of

Bash Metals at abex. Hello guys. Hello Jessica. Hi. My

day today, it's good to have you here. Abax is a Singaporean

exchange that centrally clears physically delivered

contracts for LNG battery metals,

carbon. And today Joe and Sasha will discuss the launch of their new

lithium carbonate product and what that impact is for the evolving battery

metals market. So for those of you who are not familiar with

this industry, lithium is a key component in lithium ion

batteries which power everything from electric vehicles to

larger scale energy storage. So given its high

reactivity and volatility, lithium is often processed into

a stable compound. So this can be lithium hydroxide or

lithium carbonate in this case. As always, you can find out a little bit more

about our battery metals reporting on FIS live. But for now we're

excited to have Joe and Sasha with us here today to talk about this new

development. So I'm sure you guys are wildly busy

during this period. So thank you for joining us. Would you mind starting

by telling us a little bit about your experience launching both

a brand new commodity future exchange and clearinghouse at the same

time as you're introducing a new commodity benchmark to the market?

A difficult process, Jessica. And if you look back at history and

look at how many new exchanges, futures exchanges, certainly there are a

lot of what they, you know, exchanges out there help use air quotes.

But you know, when you look at futures exchanges, regulated futures exchanges and

new commodity clearinghouses, they haven't

really come about after just the incumbents that are out there. And

so from a clearinghouse perspective, that's really the keys to the marketplace

and the real central risk management tool of an

exchange, a regulated exchange. The last time someone was

built from the ground up that's focusing on commodities and

launched hasn't happened in over two decades. So it is

rare. A lot of people forget how hard it is to build this and to

launch it, let alone the products that come along with it. So when we

started the project over six years ago, we knew it was going to take a

long time. We knew that the product sets in, the

original products that we launched with an LNG and carbon and battery metals were

important to the marketplace. Certainly things evolve and change over those six years.

But I think if we look back and say, did we do the right thing

from a product perspective, we can emphatically say yes.

And then as things change, more products come to light

that need better credit and risk mitigation tools

that haven't been developed by the existing exchanges. And that's really where

we see the opening for ourselves. We saw this years ago and

we see it still today where there's an opportunity to bring

better risk management tools, better technology to the

marketplace. That that hasn't been addressed by the existing

exchanges. So when we talk to customers, they say we don't see innovation, we don't

see innovation in products, we don't see innovation and better collateral

management tools. And that's really what we focused on from

the beginning. And we see that opportunity is still there as we progress

through both our launch last June and then the recently

launched products in battery metals and certainly more to come

too. So you often talk about this idea of a smarter

market. What does that mean to you in practice? So what are the

characteristics of these smarter markets? I guess I'm asking.

Yeah, a lot of it is still developing, but we're, we're cloud, we're

native cloud based. So we started developing our exchange and

Clearinghouse as a cloud based entity. The

other, the incumbent exchanges are trying to get there, still trying to get there.

We've, we've been there from day one. And really what does that mean? It gives

better solutions in managing collateral management, as I

said, also managing the trades every day of

risk and clearing of the customer's positions,

ultimately with some of the tools that we will be rolling out here over the

next few months and weeks and the

marketplace will see the better way to manage their risk

in these marketplaces. And that's really what we talk about in smarter markets. It's

better products, it's more innovative products, it's better tools for risk

management, better tools for collateral management. All the things that

come with the needs of a regulated futures

market. Well, thanks Joe and Sasha. Now looking

at you, looking at the products that you put out since the beginning of this

year. So like in January, nickel sulfate futures that have been

introduced and then the lithium carbonate futures have been introduced recently,

this month. So can I ask you, why did you choose specifically

the lithium carbonate and the nickel sulfate and what actually made you choose

these compounds and not maybe another one? Look,

it's been two separate processes. We started as a

first product for the battery suite of products to develop a nickel

contract. And this really came pretty

closely after the big Qingxiang short and

the subsequent squeeze on LME where we've actually really

been approached by a lot of participants in the market who knew that we're going

to launch a new exchange and said, why don't you do anything on

nickel? And then we started and

that's how we build our contracts. Everything we do by talking

to the industry, getting out there, to conferences,

calling up people, meeting people in their offices, trying to

understand where the pain points are and what we could do

differently. And out of this, really, as

of, let's say, when Was that? Summer, autumn

22, we started embarking on trying to see

what we can do on nickel. And the result of this industry wide

consultation phase was we did nickel sulfate contract.

And once we had that and actually maybe a year

later we started thinking, what else could we do? And then we

started exactly with the same approach, looked at lithium, talked

to lithium producers, consumers and traders alike and then came

up with the solution for lithium carbonate. So

for both products you don't have a physically deliverable contract. And this is really

our mantra, you know, where we have cash, second contract. In the case

obviously of lithium, you have,

you have markets physically deliverable for nickel. But we thought,

you know, the nickel sulfate is just really A a new

product which the market needs and it's not physically deliverable in the state

of nickel sulfate. So that's basically how we started these

contracts. Okay. And like looking a little bit about the

ABAC's battery metal contracts that are complementing or supplementing

the current tools for traders. So what are the commercial

advantages? So the commercial advantages are really

that you have for the first time now the option as a producer

and consumer alike to pick up material or deliver

physically nickel sulfate or lithium carbonate to the

market. So it's a buyer and seller of last resort. We

looked at the structure of delivery. We have a direct delivery mechanism

where buyers and sellers are met at destination. We have in

the case of nickel sulfate, Singapore contract. In the case of

lithium carbonate, we have three contracts, Singapore,

Baltimore and Rotterdam alike. So it's is can it can really be

used as a bar itself of last resort

where excess volume can be placed through the exchange by putting

on a short and it creates

alternative sourcing mechanism to

get hold of nickel sulfate or lithium carbonate.

And lastly, so when you have like traders that are active either in the

physical and in the futures market, they often talk about

how it actually helps them to optimize their supply chain or

optimize their infrastructure. So optimization here is the key word. So

in very simple terms, what does it mean for the people who aren't either

traders or the people who are not in the battery market in the battery

metals industry, but they haven't taken the advantages of a futures market

before? Look, first and foremost this is a risk

management tool. You know, that's how futures are used by the industry to

hedge positions for producers to maybe

forward hedge if they like the price for consumer to fix price, you know,

a range of products which they have to offer to the market for consecutive

five, six years, they can fix price that by putting on

hedges. But then when you get into the middle and really in the

sweet spot of that industry where traders and processors

are involved, they get a tool now into their

hands where they cannot only use it as risk management

tool for hedging, but they also get the chance to physically

deliver against a short which they don't have to buy back and don't lose

money or pick up material against the long when they can

outsource in maybe distressed markets. So it really

creates an alternative tool for the whole supply chain.

And by creating those lithium carbonate and nickel sulfate contracts

according to the specifications which we've defined widely with the

industry to make sure it can be used by a big number

of consumers and producers alike and really creates

this additional opportunity for sourcing and

supplying physical units apart from the pure

risk management tool which is traditionally financially

settled. Sasha Jo, thank you very much for joining us.

Thank you. Thanks so much for having us. Thank you very much. And that's it

for this week. Make sure to subscribe by clicking the subscribe button on wherever you

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Bye.