Market Volatility and Season's Greetings!
Hello and welcome to a special edition of Freight Up, the go-to podcast for the latest buzz in the commodities and freight markets from FIS.
I'm your host, Fernanda, and boy, do we have a jam-packed episode lined up for you this week. And it's just as well because this is our last episode of 2023!
We've got Joshua Stern, Archie Smith, Hao Pei, George Huston, and of course, John Banaszkiewicz, centre stage to dissect the fluctuations that are setting the tone for both 2023 and the predictions that 2024 holds.
We're also linking here to the website John B mentions in his conversation with us, in case you're feeling festively charitable and want to help us to help Ukraine!
We'll explore the ripples of the nickel price surge on battery costs and the consequent allure for financial players in the green battery production space.
Josh will take us through the steel markets, from USHRC to scrap, and we'll delve into the ever-fluctuating landscape of oil with Archie's expert insights on those OPEC decisions and their far-reaching impacts. Oh and an update on Al Zour!
But it's not all charts and numbers; we'll touch upon the more personal side of our guests as they share their humanitarian efforts, their holiday cheer, and, yes, their plans for their four-legged friends during the festive season. Love going straight out to the Smith family doggos!
With the masterful breakdowns from our commodity connoisseurs, we're looking at market drivers like freight, iron ore, and the growth of the battery metals market with us lot at FIS setting the pace.
We're also zooming into the futures of Supermax, Cape, and more with eye-opening contract period interests that have surged before we all turn our calendars.
George Houston's ground-breaking venture into the fertiliser options market and Hao Pei's prediction on iron ore prices serve as testaments to the innovation and foresight pulsing through the veins of this industry.
Oil and Fuel Market Fluctuations
Archie Smith discussed the crude market sways influenced by OPEC's production cut decisions and compliance uncertainties as non-OPEC nations ramp up their outputs. He also delved into the broader ramifications of an economic downturn on oil prices and the expected decrease in demand by 2024 as per the Energy Information Administration.
A targeted attack on an oil tanker has sparked fresh concerns over the safety of critical shipping routes, which could potentially inflate prices due to perceived instability. Yet, the fuel market as a whole appears to be settling, with a softening in marine fuel prices brought about by increasing supply forecasts in Asia.
Iron Ore Pricing and the Steel Market Insight
Our episode features a deep dive with Hao Pei into the steel markets including iron ore prices.
The iron ore market has been stationed at unprecedented highs, but Hao Pei suspects this balloon may soon deflate to foster a more sustainable industry landscape. He forecasts a potential price correction that might bring some relief to beleaguered steel mills.
There's a predictable pattern emerging, with predictions of market volatility in the first half of the year and a price band oscillating between $95 and $140. Josh, providing his take on the US hot-rolled coil and scrap markets, echoed the sentiment on price surges and seasonal pressures.
Seasonal Reflections and Forward-Looking Predictions
As the freight and commodities space braces for 2024, John B took time to reflect on the year's challenges and opportunities. Josh Stern's analysis of steel markets, the first-ever brokered fertilizer option by George Huston, and Hao Pei's perspicacious commentary on iron ore provided a comprehensive review of hot commodity markets.
The volatile oil narratives, as presented by Archie, interlaced political factors with market predictions.
Yet amidst this earnest discussion, there was room for lighter, more personal shares, including holiday plans and charitable contributions, reminding us all of the humanity that underlies our global markets.
As we face the turbulence of year's end, Freight Up extends warm holiday wishes to you and your family and looks forward to another year of keen insights and evolved market landscapes!
We hope you'll continue to join us in January!
Timestamps
05:05 Poor demand outlook, shipping route concerns impact prices.
09:32 Volatility in markets, challenging year for traders.
11:00 Market sentiment leans positive, despite volatility.
16:32 Complexity and volatility in the environmental market.
20:01 Steel market experiencing volatility, momentum slowing down.
23:39 Curve flattens, backwardation returns, interest in 2024.
27:42 North China weather disrupts port, Pacific rates rise.
29:02 Highly volatile week in shipping and trading.
32:12 Panamax, Cape, Supermax saw high trading volumes.
36:28 Specialised in grain risk management; advocating accessibility.
40:32 Iron ore demand and supply dynamics suggest bearish outlook.
42:37 Iron ore prediction for 2024: higher average.
Remember to review and follow us on whichever app you enjoy listening to us in!
Powered By Podcastpage.io
Or choose your favorite app:
Speaker:
We finally did it. After a year of
Speaker:
begging, pleading, bargaining,
Speaker:
we finally got John B. To sit down in the studio with us
Speaker:
and give us a review of the hot commodity markets for
Speaker:
2023 and a view of what he hopes will come
Speaker:
in 2024. We started with Cobo. Now we're doing lithium,
Speaker:
we're doing options, and we're seeing growth market
Speaker:
there, particularly when you look at the price of a battery. So make sure to
Speaker:
stick around. All this and more on freight up. Freight up.
Speaker:
Hello and welcome to freight up. My name is Fernanda, and have we got an
Speaker:
episode for you. It is our last one before we go off on Christmas
Speaker:
break, and we won't see you until the new year. Now, I know you're upset
Speaker:
because this is our last episode before the new year. And
Speaker:
before you start wiping your tears, I'm going to tell you we've got a
Speaker:
great one for you. Not only have we got Johnny B. Himself,
Speaker:
he's going to be giving us a review of some of our major commodities
Speaker:
here at FIS, and also muse a bit about what the year of the
Speaker:
dragon may hold next year. Joshua Stern from our steel
Speaker:
desk and George Houston from Bertz will be offering us a year in
Speaker:
review for their respective desks. Not only that, but a Smith
Speaker:
seven, your favorite broker, will be here to give you his
Speaker:
oil update. So let's dive on in with Archie Smith.
Speaker:
All right. We are in the studio with the one,
Speaker:
the only, a Smith seven, the people's
Speaker:
broker, breaker of chains. Archie, how are you
Speaker:
doing? I'm great, thank you. How are you? Fantastic. I'm very sad that
Speaker:
this is our last episode before Christmas Break. Is it?
Speaker:
Yes. There you go. Now we found out. Yeah. I wasn't
Speaker:
aware you're going to show up next week. I missed the last week, didn't I?
Speaker:
I was in Copenhagen. Yes, we all cried. We were
Speaker:
all very sad, actually. This is your
Speaker:
opportunity to apologize to the fan base. Sorry to everyone, really.
Speaker:
I was representing FIS at our drinks event there, which
Speaker:
was really good. Really good. You know, taking one for the team.
Speaker:
Archie. Someone's got to do it. Yeah. Literally anyone. Okay,
Speaker:
fantastic. Archie, what is going on in the world of
Speaker:
oil? Yes. Crude markets down quite
Speaker:
significantly. I mean, we were touching lows today
Speaker:
of, well, just above $72 per barrel.
Speaker:
72. 20 around there. We were touching OPEC a few weeks
Speaker:
ago, decided they were going to extend the production cuts, the
Speaker:
existing ones, and also add to those as well
Speaker:
with some of the other producing countries. But it's all kind
Speaker:
of backfired at them. I think that there was definitely a lack of
Speaker:
kind of union that has been felt in previous
Speaker:
decisions. OPEC have seemed very unified and very
Speaker:
unanimous when coming to these decisions. I think with the most recent meeting, it seemed
Speaker:
very scattered and that's kind of planted a lot of doubt into the
Speaker:
market. So they feel like they've got some wiggle room. Yeah, wiggle room.
Speaker:
And also I think people are genuinely just thinking that certain
Speaker:
countries are just not going to stick to the abide
Speaker:
by the cuts. So that kind of injection of doubt hao seen crude
Speaker:
prices really come off, even though the official announcement is okay. Yeah, we're cutting
Speaker:
production, which you would imagine in the normal world
Speaker:
supports the prices. Yeah, exactly. I just think that there's a lot of doubt around
Speaker:
these decisions and that's why we're seeing crude come off quite
Speaker:
substantially. We're also getting downward pressures
Speaker:
from non OPEC nations who have really kind of
Speaker:
ramped up production, us being one so kind of
Speaker:
supply surplus almost being floated out there for some
Speaker:
periods of 2024. Nice to know that my gas
Speaker:
prices won't be too high when I get there. Well, yeah, you say that,
Speaker:
but I think it's the gas pump that
Speaker:
always kind of changes last, isn't it? Yeah. When the crude comes
Speaker:
up, I think for the consumer the gasoline prices are
Speaker:
quick to shoot up, but when crude comes off, they're quite slow to
Speaker:
come back down. I'll let you know how it is. Yeah, I
Speaker:
mean, it's much cheaper in the US than it is over here anyway.
Speaker:
I thought the price here was per gallon. Yeah,
Speaker:
it's insane here. Yeah.
Speaker:
Another kind of major factor that's always been lurking in the background is just
Speaker:
kind of general economic outlook still remains pretty
Speaker:
woeful, which again is just adding more downward pressure to prices. I mean,
Speaker:
the EIA actually came out today and lowered their
Speaker:
figure for 2024 oil demand outlook.
Speaker:
So, yeah, again, that kind of saw us come off price wise. I've
Speaker:
got the figures here. They actually lowered it to
Speaker:
102.34 million barrels per day
Speaker:
from 102 spot. 44 million barrels
Speaker:
per day. A small decrease but a decrease nonetheless just kind of stokes
Speaker:
those fires of is the demand going to be there. And what's your take on
Speaker:
it? What's the word on the street? I think word on the street for the
Speaker:
whole kind of year has been poor demand outlook kind of
Speaker:
coming from the other side of it. Something that may
Speaker:
be offering some of a flaw to prices is
Speaker:
a little bit of worry in terms of shipping routes
Speaker:
involving Israel. There was an attack on an oil tanker this
Speaker:
week, which kind of supported prices. I think the name of the group
Speaker:
is Houthi. I think they did claim that
Speaker:
attack. That being said, I know that a Yemen militant
Speaker:
official did come out and say all non israeli bound
Speaker:
ships are safe, but any israeli bound
Speaker:
oil tankers are a target I think is kind of pretty much what he
Speaker:
said. So yeah, the war tension is kind of coming back into it again. It's
Speaker:
not significant enough to really kind of boost prices, but
Speaker:
I think there is an argument for it offering some flaw at the minute.
Speaker:
Obviously we are still coming off, but there's definitely enough
Speaker:
worry of physical oil tankers being attacked in that region. In terms of support
Speaker:
side, I'd say that's one of the only points at the minute. Everything else is
Speaker:
kind of going the other direction and I think that pretty much rounds me up
Speaker:
on the crude. Overall fuel market
Speaker:
is definitely settling, looking
Speaker:
kind of specifically at the sing .5 marine fuel. Obviously
Speaker:
we saw ridiculous strength in that a few weeks
Speaker:
ago and that was in light of the Azore refinery being offline in
Speaker:
Q eight, which is a massive, massive producer of the very low sulfur
Speaker:
marine fuel oil. We saw cracks getting to record high
Speaker:
levels, front spreads getting to record high levels. That was last month.
Speaker:
And kind of since then it has just been gradually settling and
Speaker:
softening. I mean the cracks off about a dollar on the week,
Speaker:
6.5 front cracks trading around $10 per barrel. That was about eleven
Speaker:
thereabouts last week. And same with that front. Jan
Speaker:
Feb spread is off about $2 on the week. Just
Speaker:
trading sub five levels as I left my desk.
Speaker:
So yeah, really kind of see softening in that market and that's just
Speaker:
off the back of higher supplier expected in
Speaker:
Asia arbitrage and also Alzheimer refinery coming
Speaker:
back online. I think it's set to be fully operational at the turn of the
Speaker:
new year. I think it's the third and final spec up that they're getting
Speaker:
back online. The other two are operating and obviously
Speaker:
that's just injecting a lot more supply into the asian market and
Speaker:
hence why we've seen softening in the front there.
Speaker:
It's the most important question is, Archie, what are you doing for the
Speaker:
holidays? I'm just at home. Me mum,
Speaker:
dad, the dogs and potentially nan and granddad.
Speaker:
Biggest fans afraid up all under one roof. Exactly.
Speaker:
Are you a household that gets your dogs presents 100%?
Speaker:
Yeah. Oh my God, that's so cute. When did you get them? This year. They're
Speaker:
not listening. Well yeah, I've not bought for my dogs this year. But last year
Speaker:
I got them a barber coat each
Speaker:
year and some
Speaker:
barber dog shampoo and dog conditioner. Oh,
Speaker:
my God. Well, now, you know, folks, Archie's dogs are living
Speaker:
better than you. Yeah, spoil them. Yeah. It was an absolute
Speaker:
pleasure to have you here today. And we'll see you in
Speaker:
2024. Yes. Happy new year to everyone. Merry Christmas and see you
Speaker:
2024. Now, we couldn't
Speaker:
say goodbye to 2023 without giving you a very
Speaker:
special present. And that present is the
Speaker:
musings of FIS, John
Speaker:
B. All right. We are in the studio in
Speaker:
London and there was just thunder and lightning outside, which
Speaker:
can only mean one thing. John B. Is here.
Speaker:
How are you, John? Very well, thank you. It's great to have
Speaker:
you. Good to be back. Took a year, but we got you in
Speaker:
here. So it's been a bit of a volatile year.
Speaker:
And for you it seems to be that either
Speaker:
Burnley is going to have a stable year or the markets are going
Speaker:
to have a stable year. Which one happened this year for you? Well, unfortunately,
Speaker:
Burnley. If you look at the league table, we were pretty much at the bottom.
Speaker:
But the season's not over. I think we play
Speaker:
Everton on Saturday. So we've got to get a win. The business is what
Speaker:
we do. The commodity business. Yes, it's been a very volatile
Speaker:
year. We have lots of markets and you're going to give us a breakdown
Speaker:
of each one? Well, the first thing is we probably haven't
Speaker:
seen this volatility since probably the spring of
Speaker:
2020 when we were starting around sort of COVID
Speaker:
time. And prior to that we had this massive move in the
Speaker:
markets in 2008 with a financial crash and also the shipping
Speaker:
crash and the iron ore crash. Been a difficult year, to be honest, for everyone,
Speaker:
particularly the traders, because it's been all over the place. So I just wanted to
Speaker:
just highlight some of the key markets, which fis do.
Speaker:
So obviously on the freight, the dry freight. I came up
Speaker:
with something the other week called Cape Miss
Speaker:
because it was an early Christmas present for the Cape owners when the
Speaker:
market rallied from sort of 20,000 to sort of over 50,000.
Speaker:
You can never predict anything in freight because there's always something which
Speaker:
people haven't predicted. So there was a big shortage of
Speaker:
ships in the Atlantic. There was a lot of destocking and
Speaker:
yeah, it went up. And then the December contract in
Speaker:
Capes were 41,000, then dropped to 29,000.
Speaker:
And it's now at 35. So it's not quite Cape crash,
Speaker:
but obviously it's been and interesting. It caught market
Speaker:
by surprise. So just when we're talking about freight, we've
Speaker:
had increasing volumes this year on the dry
Speaker:
FFA and I think we're up 38%. So well
Speaker:
done. Increasingly important part of the industry for
Speaker:
shipping and we've seen more financial players coming in with
Speaker:
a different view. Some people think, is that good for liquidity or bad for
Speaker:
liquidity? And overall most people have been streaming for liquidity and
Speaker:
it's good for liquidity, I think, and it's moving the markets,
Speaker:
particularly if a ship owners got a view, maybe their fund has a different view.
Speaker:
So it's good to have a two way market then
Speaker:
moving on from freight. Iron
Speaker:
ore, obviously iron ore has also been
Speaker:
really volatile. So we've seen iron ore, CNF
Speaker:
China, the imported price in China go
Speaker:
from
Speaker:
definitely booked the trend because no one expected
Speaker:
the iron ore to go to $137 because there was lots
Speaker:
of production, there was really negative news coming out of China. We had the
Speaker:
property market, which is about 30% of the GDP,
Speaker:
on its back. We've seen this stimulus come in, we've seen a
Speaker:
ramp up in the numbers and once again the iron ore has
Speaker:
rallied and caught the market by a surprise.
Speaker:
And then the other sort of products we do
Speaker:
steel and scrap. We've seen healthy volume growth in the
Speaker:
steel and scrap market, particularly in the US and also in the european
Speaker:
market. We've seen the prices moving around
Speaker:
some days, $5000 a day. And slowly,
Speaker:
slowly the industry in steel, which has been
Speaker:
the second biggest commodity after oil, is waking up to the fact we
Speaker:
want to hedge, we want to trade risk management products.
Speaker:
So we've seen lots of consolidation in the US
Speaker:
with some three big steel companies who don't trade derivatives.
Speaker:
But we hope that they might do in the future when they see these kind
Speaker:
of price swings and more of these young people going into
Speaker:
these industries and know coke and coal, iron ore,
Speaker:
steel, you've got to manage risk. So hopefully that conservative
Speaker:
industry is going to move more into these markets like the power
Speaker:
and the energy markets we've seen over the last 1020 years. Then we move on
Speaker:
to oil. Oil, wow, oil.
Speaker:
So it's been very political this year,
Speaker:
particularly who's bigger, us or China? Do we
Speaker:
price global trade in dollars or in RMB? So there's been that
Speaker:
sort of struggle. We've had a lot of politics, obviously
Speaker:
there's still the Ukraine war, which fis, very sad, which I'll talk about
Speaker:
shortly. We've had obviously the Middle east crisis and we've got the
Speaker:
big powers there and it's adding to that
Speaker:
volatility. And then, obviously, the US has ramped up its production
Speaker:
to starve all that volatility off. And it's also
Speaker:
been really difficult to trade. And
Speaker:
we certainly at FIS, we're seeing a lot more ship owners
Speaker:
coming to us, asking how we can hedge those
Speaker:
volatile prices, because in some cases, it's 30% to 40%
Speaker:
of the delivered cost of freight. That's kind of working. Some other
Speaker:
interesting markets, which we have pioneered and innovated, obviously,
Speaker:
people think, well, we just sit there, but we do a lot of good
Speaker:
work in the market by looking, what does the industry want, what
Speaker:
type of products need to be developed? And we were the first company to start
Speaker:
on battery metals. So, interestingly, battery
Speaker:
metals is a growing market. So if you look at the new car
Speaker:
production this year, 30% of new cars in
Speaker:
China are electric,
Speaker:
23% are in Europe
Speaker:
electric cars. And where you're from, the gas guzzlers of the
Speaker:
US, who are kind of anti green,
Speaker:
we've got 7%. So slowly, slowly, the US,
Speaker:
we're getting there. Getting there. But then, yeah, so we started
Speaker:
with cobalt. Now we're doing lithium, we're doing options, and
Speaker:
we're seeing a growth market there, particularly when you look at the price
Speaker:
of a battery. If you take cobalt, lithium and nickel, we came up smith. This
Speaker:
idea called the virtual battery. So you can buy the actual ingredients of
Speaker:
the battery, because in some cases, it's 30% to 40% of the cost of a
Speaker:
battery is the actual raw materials, and it's about 20, 30% of the cost
Speaker:
of a car. So it's a very important part of a car. And
Speaker:
particularly when nickel prices went through the roof, the battery prices all
Speaker:
went up. So it's a good time to be friends with Anna Chadwick. That's
Speaker:
right. And obviously, we're seeing companies coming into
Speaker:
this space, particularly some of the financial players and the funds,
Speaker:
who actually don't produce cars. But they think it's a good story for their
Speaker:
investors because it's know, it's green.
Speaker:
It's a green story. So we're getting more non
Speaker:
car production companies involved in that, because it's a good story for. It's a
Speaker:
good ESG move. Yeah. The nice thing is, because cobalt,
Speaker:
most of it's producing the DCR, you can't really trade the physical
Speaker:
cobalt, because you've got two big traders who own most of the production. So
Speaker:
having a paper instrument, there's no risk of defaults
Speaker:
or companies not supplying the stuff. When you can trade the index
Speaker:
and then going through the other stuff, what we do, the
Speaker:
fertilizers, has not been as volatile this year. We've seen
Speaker:
China one month say we're not going to export fertilizers, and then all of
Speaker:
a sudden it goes up. And then for the indian tender the other month, they
Speaker:
provided 30% of the import. So that's been
Speaker:
volatile. It's a lower prices today, around $300,
Speaker:
but it's a very important part of the cost of grain, which is around
Speaker:
20%. And then emissions,
Speaker:
obviously my favorite, because it took me a year to understand what it
Speaker:
was. And a lot of trading. Yeah, a lot of
Speaker:
groans and, you know, it is a complicated market because you've got
Speaker:
what we've got the compliance market, which is the EUAs in Europe, and then
Speaker:
we've got the voluntary market, which is kind of global. You've
Speaker:
got lots of different products out there which have all different
Speaker:
points. But the fact is there has been a little bit of reduction in Europe
Speaker:
in terms of global emissions and there's been more of a switch
Speaker:
into renewables. But you've seen people who are long the
Speaker:
Euas to go short. So we've had volatility there
Speaker:
from
Speaker:
shipping company has to wake up to this kind of price swing, because they're going
Speaker:
to have to get involved in it. And we've been pushing the consultancy side
Speaker:
and trying to help people understand how to trade it and be green and make
Speaker:
money. And we're there to help you for next year when it
Speaker:
actually starts. And you have to register what you have to do
Speaker:
in closing. It's been a very interesting year.
Speaker:
Next year is year of the dragon. That's the wood
Speaker:
dragon, apparently.
Speaker:
A dragon fis. Very intellectual. Takes advantage of
Speaker:
things at any chance, and it's good fortune. The tiger, which
Speaker:
I was born, is the Risk taker. So I get gobbled up by the dragon.
Speaker:
We had a very good event the other week in Shanghai.
Speaker:
I haven't been there for a number of years. It was great to see
Speaker:
everybody. You cannot ignore China. China is still 40
Speaker:
45% of the world's commodities and we want to keep investor
Speaker:
in China. We've been there for 15 years and we appreciate their support
Speaker:
from the chinese companies we deal with. And
Speaker:
then, very sad situation in the world's
Speaker:
politics today with Israel and Palestine. But
Speaker:
obviously, something close to our heart has been Ukraine. And
Speaker:
having been on the front line and seen face to face, I speak pretty
Speaker:
much every day to people in Ukraine, and it's really
Speaker:
a bad situation. We've delivered the armored ambulances we've
Speaker:
delivered humanitarian aid. We're also providing flour and
Speaker:
bread to build a small bakery down in Hassan. The Victory
Speaker:
Bakery. The Victory Bakery, yeah. So I would stress,
Speaker:
and the fact is, it's our charity, which is direct. We're not going through
Speaker:
other big charities which take 20, 30%. We can show you what we
Speaker:
do. So anybody on listening to this, if you can help us, it's
Speaker:
www.ukrainecares.com. And I can assure you,
Speaker:
you'll make somebody a happy Christmas. It's not a happy Christmas down there right now.
Speaker:
And we're all sitting having our mince pies and having a beer. But think of
Speaker:
other people who are having a very hard time.
Speaker:
We also helped up in Burnley, the cancer. You
Speaker:
donated quite an innovative machine. We donated
Speaker:
probably the second biggest donation in East Lancashire. And
Speaker:
the idea was to try and catch cancer early. So we're able to
Speaker:
buy a machine which can actually spot the cancer and actually can do the operation.
Speaker:
So it's really frightening to go to these things anyway. And then finally you've
Speaker:
got a cancer, a lump, and then you can get operated on there and
Speaker:
then. So it's absolutely amazing. So I just wanted to thank the customers
Speaker:
of FIS and all the people we know for your support this
Speaker:
year, and hopefully we'll continue this good fortune as
Speaker:
the year of the dragon says. And I hope 24 will be good. Have a
Speaker:
great Christmas, keep safe and well, and thank
Speaker:
you again. Now it's been
Speaker:
a minute. I know you've missed him. So here's Joshua Stern with a stern
Speaker:
update. Yeah, thanks for the introduction, Fernanda. It has been some
Speaker:
pretty crazy times in the steel markets over the past couple of weeks, in
Speaker:
particular on both the scrap and the USHRC side. On the
Speaker:
USHRC side, we've seen the mills really come in and raise
Speaker:
offers pretty much up to about 1100 area right now.
Speaker:
That's kind of where we're trading. Cru came out at about 1044
Speaker:
this week. Platts is actually putting us Midwest
Speaker:
HRC physical trades obviously out there already at
Speaker:
1100. So, yeah, it seems like there's a little bit more move to the
Speaker:
upside still, but momentum has definitely kind of fallen off
Speaker:
over the last couple of days. We had a huge rally, essentially from about
Speaker:
800 all the way up to about 1100. If you're looking
Speaker:
at like the Jan futures right now, they're just trading a tad above 1100.
Speaker:
So the curve has gotten pretty out of whack and, yeah, very, very
Speaker:
high prices right now heading into the new year. I do suspect that we kind
Speaker:
of start to see some of these prices come off in a little bit of
Speaker:
a fashion. Momentum has really slowed down, although we
Speaker:
have kind of seen like for the Jan contract in USHRC, this
Speaker:
1100 point has very much been a kind of a support level.
Speaker:
We have had a couple of trades go just a tad under, but it pretty
Speaker:
much catches support again just around there at 1100. So going
Speaker:
forward, I think for the USHRC curve, it's really, really important to go ahead
Speaker:
and kind of monitor prices. How much longer can we actually stay
Speaker:
above basically four handles? We're already starting to see things like Q
Speaker:
224 already down there at about 929 25.
Speaker:
Things are coming off on kind of the back end of the curve, whereas
Speaker:
in the front three months of, I would say 2024, you're still
Speaker:
seeing quite a bit of strength. So Q one is where most of the strength
Speaker:
is. I am a bit wary. Again, basis, the momentum of the
Speaker:
rally has really fallen off and just high price levels, especially
Speaker:
as you're going into the kind of Christmas period or holiday
Speaker:
period, you're going to see a lot of people, especially kind of out in the
Speaker:
USHRC markets where people have to get rid of quotas, right, just
Speaker:
like you and me. Everybody wants a happy Christmas. Everyone wants to hit their quota,
Speaker:
right? So steel sales, know these sales guys still have
Speaker:
steel that they need to get off before the end of the year. Hence I
Speaker:
do think that there could be a bit of pressure over the next few know,
Speaker:
kind of as liquidity also dies out going into the holiday period. So
Speaker:
that's where we are on the USHRC side of
Speaker:
know moving over to scrap. Scrap and
Speaker:
know rebar. Let me start with that one because it's just not really, I
Speaker:
feel like it never gets talked about enough. And what you're kind of starting to
Speaker:
see right now is the spread between rebar and scrap. Obviously,
Speaker:
this is what we call the arc spread here. This is essentially kind of telling
Speaker:
you how profitable are those turkish mills. And what
Speaker:
we're seeing is that these spreads are basically at super low. I
Speaker:
mean, it almost never goes sub 200 and we're looking at
Speaker:
about 180 right now on that spread on a spot basis.
Speaker:
So what you're kind of also seeing here is that rebar and scrap
Speaker:
prices very much moving in tandem, both absolutely
Speaker:
skyrocketing. I think we've gained probably $30, maybe
Speaker:
even $35 over the last two weeks on the scrap side of
Speaker:
things. And rebar was trading just at about 600. We're now about 626
Speaker:
25 as well, there. So things are really kind of getting
Speaker:
tight there. As I say there, we're getting kind of tight. I think this is
Speaker:
also very much a function of what's actually going on. First off, right now, I
Speaker:
mean, there's extreme shortages of vessels available. Freight rates
Speaker:
have shot up out the roof. So in turn, you're starting to see that
Speaker:
actually take place in the curves as well, especially in scrap and rebar.
Speaker:
So, like scrap, for instance, you've really started to see basically the
Speaker:
entire curve come up. And something that we've kind of found. Interesting over the last
Speaker:
few weeks is the curve has essentially flattened out in the front
Speaker:
months, and you're almost kind of back into a backwardation.
Speaker:
Although this backwardation might be available on screen,
Speaker:
there are kind of some interesting nuances that we've experienced over the
Speaker:
last few weeks, and we had some interest essentially in kind of further
Speaker:
down 2024. So about Q three Q
Speaker:
424. And in the scrap market, what
Speaker:
people were physical guys were coming in and they were offering this
Speaker:
significantly higher than it was on screen. And you would kind of have
Speaker:
some of the financial players come in and offer it a bit lower. But it
Speaker:
really surprised me, actually, that offers were coming in so high
Speaker:
from the fizz side. And the reason for that is, well, a, they have a
Speaker:
cost of carry, right? So that cost of carry, essentially, in
Speaker:
the back end of that scrap curve, especially with interest rates so high,
Speaker:
was quite a cost for these guys to actually go ahead and have on
Speaker:
their books going forward. So didn't really see a lot of
Speaker:
physical interest there, a lot of financial interest that was kind of looking at that
Speaker:
part of the curve. And front end of the curve is pretty much flat back
Speaker:
end of the curve, although prices might be a little bit depressed there.
Speaker:
I do think if you were in the derivative market, it might actually be a
Speaker:
bit tougher to get those prices and offers might come in a bit higher.
Speaker:
So if you're a bidder, you're very likely to have to almost kind of quote
Speaker:
unquote, overpay, in my opinion. So that's just kind of what I'm
Speaker:
seeing. Know, it very much feels like a little bit of a squeeze as well
Speaker:
going on out there in Turkey on the ground, right? I mean, you've got these
Speaker:
rebar mills and they need scrap. There's not a ton of scrap out in the
Speaker:
market at the moment, so they're having to pay up. And scrap guys
Speaker:
are, everyone's of the same opinion. With freight rates going higher, with
Speaker:
interest rates so high, et cetera. It costs so much
Speaker:
more going to head and actually trading the physical. So
Speaker:
in turn, yeah, scrap, I would say, very
Speaker:
strong right now. In general, the whole kind of turkish sector seems pretty
Speaker:
strong. Everything is rising there. Going forward into
Speaker:
2024. I've heard quite a few positive things about the rebar market as
Speaker:
well. Lots of people are expecting that there's going to be quite a bit of
Speaker:
demand and quite a bit of a price hike going into 2024. So
Speaker:
some things to look out for and, yeah, to keep your eye on.
Speaker:
I did just want to take a moment as well and kind of talk about
Speaker:
some of the physical stuff that we've seen on scrap as well. Over the past
Speaker:
couple of weeks, there has been a flurry of
Speaker:
activity. Right. A couple of weeks ago we were seeing deals down
Speaker:
in the low 400s, possibly even in the high
Speaker:
300s, but like, for instance, just yesterday we saw a deal
Speaker:
go through for 80 20 hms at 428.
Speaker:
So, I mean, again, prices are really getting elevated
Speaker:
here. Again, very strongly correlated to the heightened
Speaker:
prices in shipping and just the general
Speaker:
availability of vessels. So I think that leads
Speaker:
us very well into kind of our FFA's desk and the freight desk here, who
Speaker:
can then actually provide a little bit more insight into what's actually causing
Speaker:
these disruptions in the supply chain.
Speaker:
Let's talk freight as pessimism set in in the beginning of the
Speaker:
week. Last week, we saw aggressive selloffs in the Cape
Speaker:
market throughout the week, coupled with less support from slower fixing activity
Speaker:
in both basins. Panamax soon followed suit, marking a
Speaker:
17% decrease in a week, despite the fundamental market
Speaker:
remaining largely stable. The main supporting factors to watch out
Speaker:
for were congestion in mainland China and further potential stimulus
Speaker:
from Beijing, boosting the iron ore market. Drilling into the capes, we
Speaker:
witness a more than 30% drop in time charter
Speaker:
rates. This decline was attributed to reduced activity in both
Speaker:
basins, coupled with aggressive selloffs in ffas. In the
Speaker:
Pacific, only one iron ore major was seeking cargo for most of the week,
Speaker:
leading to an increased tonnage list. Conversely, cargo volumes from
Speaker:
Brazil and South Africa declined, widening the gap between bid
Speaker:
and offer and further pressuring Atlantic rates. However,
Speaker:
adverse weather conditions in north China resulted in more port
Speaker:
closures, slightly boosting Pacific rates from the end of last
Speaker:
week. On a weekly basis, Cape iron ore shipments fell by
Speaker:
10% to 29 million tons due to a sharp volume
Speaker:
decline from Brazil. Coal volumes remained steady at a high level of
Speaker:
7.4 million tons, supported by consistent robust
Speaker:
demand. However, minor bulk volumes experienced a significant weekly
Speaker:
drop of 17%, reaching 2.8 million tons.
Speaker:
The Cape rate started to rally at the beginning of the new week, driven by
Speaker:
potential increases in iron ore demand from China,
Speaker:
anticipated government stimulus and ongoing weather disruptions.
Speaker:
It's likely that rates will firm up to some extent this week.
Speaker:
In terms of fixture, the key c five iron ore route West Australia to
Speaker:
China was initially fixed at $13.90 for 16 December onward,
Speaker:
but fell to $10.40 for 23 to 25 December
Speaker:
by the end of the week. Last Tuesday was a day for the bears as
Speaker:
December sold down to a low of 31 500
Speaker:
-500 from closing levels and -9000
Speaker:
from yesterday's highs and January sold down to 14,000,
Speaker:
which is -3000 there was some respite in the evening session
Speaker:
with December retracing to 32 750
Speaker:
and Jan to 15,750.
Speaker:
Conversely, this week started off a bit hot with December getting paid in quick
Speaker:
succession 33,033
Speaker:
534,000. January traded up to
Speaker:
17,250 and q one to
Speaker:
13,500. Sellers took over in the afternoon, with January
Speaker:
pushed down to 16,000, minus 1250 from the
Speaker:
highs. Moving on to Panamax as we alluded to in
Speaker:
the beginning, despite the fundamentals remaining consistently stable,
Speaker:
Panamax had a highly volatile week and came under pressure from
Speaker:
a bearish Cape market. In the asian market, strong coal demand persisted
Speaker:
from China, Japan and India, resulting in high shipments reported from
Speaker:
Indonesia and Australia. Additionally, market sources reported an
Speaker:
increasing number of vessels waiting around North China due to weather
Speaker:
disruptions. Nevertheless, the negative tone in ffas took
Speaker:
charge, leading to slower fixing activity and a standoff between
Speaker:
owners and charterers. Initial buying last Monday saw December
Speaker:
print up to 21 500 and q one up to
Speaker:
15,250 before stalling and running into
Speaker:
resistance. This resistance turned into pressure as the day progressed
Speaker:
and December traded down to 19,250,
Speaker:
Jan to 14,600 and q one to
Speaker:
13,250. A gloomy day on Tuesday
Speaker:
followed for Panamax papers. December and January traded down to
Speaker:
17,000 512,500
Speaker:
respectively, while Q slipped down to
Speaker:
11,750. Post index saw the curve
Speaker:
correct itself, with December pushing north of 18,000, January
Speaker:
to 13,250 and q one up to
Speaker:
12,650. Fast forward to this week and the market
Speaker:
is starting to slow down with Christmas just around the corner. Q one was
Speaker:
hovering up about 12,400 to 12,500
Speaker:
and January was being paid at 13,250.
Speaker:
More interest was seen further out, with Cal 24 reaching
Speaker:
12,900 and Cal 25 paid at
Speaker:
11,900. The afternoon saw sellers return, with the
Speaker:
market dipping $300 from the day's highs before stalling at
Speaker:
a close. Finally, for all you Supermax
Speaker:
fans, we've been waiting for this moment. Last week we
Speaker:
saw some early rallying on Monday, which was quickly
Speaker:
overturned in the afternoon as December and January traded up to
Speaker:
19,000 517,500
Speaker:
respectively, before trading down over
Speaker:
$2,000. Tuesday opened on a softer note, with the
Speaker:
entire curve mostly offered. Jan and Q one traded down
Speaker:
to 12,750 and 11,650,
Speaker:
respectively. Further out, cal 24 and Cal 25 traded
Speaker:
down to 11,850 and 11,100,
Speaker:
respectively. This week we started off with January trading up to
Speaker:
13,700 on the prompt. A lack of liquidity saw sellers
Speaker:
offering into avoid, leading to the entire curve coming off throughout
Speaker:
the day. Finally, the FFA market this week
Speaker:
saw another week of heavy volume in the FFA's market preceding the
Speaker:
holiday season, with the total trading volume reaching nearly
Speaker:
108,000 lots last week. Among vessel sizes,
Speaker:
Panamax futures saw the largest volume traded, averaging
Speaker:
6725 lots changing hands per day.
Speaker:
Cape followed closely with about 5230 lots
Speaker:
traded daily, and Supermax also experienced higher volumes,
Speaker:
averaging 3070 lots traded daily. Options
Speaker:
trading remained active with 2580 lots cleared in
Speaker:
Cape and 13,850 lots in
Speaker:
Panamax. In terms of contract periods, the primary focus of the
Speaker:
interest was on December January Q one, Q two and
Speaker:
Cal 24 to 25 contracts, so pretty much all of
Speaker:
them open. Interest increased slightly as positions extended to
Speaker:
further dated contracts. As of 11th December, Cape five
Speaker:
TC open interest reached
Speaker:
170,520 lots,
Speaker:
Panamax four tc,
Speaker:
180,466 lots, and
Speaker:
Subramax ten tc
Speaker:
88,176 lots.
Speaker:
Finally, in regards to voyage routes, last week we saw
Speaker:
2.225 million tons of c five and
Speaker:
39.5 kilotons of c three were cleared, with the
Speaker:
main interest focusing on December on deck and Q
Speaker:
one contracts along with smaller sizes on Jan.
Speaker:
24. That is your freight update. We will see you
Speaker:
in the new year.
Speaker:
And now for a voice that you've never heard before, George
Speaker:
Fertilizer Houston is here to give you his update.
Speaker:
All right, George, so it has been one heck
Speaker:
of a year for the fertilizer desk, which is why I'm
Speaker:
assuming you're making your braid up debut podcast.
Speaker:
Welcome to the show. Yeah, well, thank you for having me.
Speaker:
Tell us a bit about some of the big news you have to share with
Speaker:
us. So the big news is me and the fertilizer team
Speaker:
brokered the first NoLA DAP option last week, which would
Speaker:
be the first phosphate options traded in the fertilizer
Speaker:
market. And it was a 550 March NoLA
Speaker:
DaP put option at $11. Amazing. And
Speaker:
what does this really say about the market right now? I think it shows
Speaker:
that the options market is continuing to develop and
Speaker:
mature and grow, and we're hoping that
Speaker:
this DAP option is the first of many of DAP
Speaker:
options to come, and we'll continue to kind of push the momentum that we
Speaker:
already have in the options market and fertilizer.
Speaker:
That makes sense because this isn't the first big milestone
Speaker:
we've had this year. Can you tell us a bit more about some of the
Speaker:
other achievements that FIS has had over the year? To kind of go over
Speaker:
our recent achievements in the options markets going
Speaker:
back to October of 2022, we brokered the first
Speaker:
fertilizer option, which was a Noli urea option.
Speaker:
And then in July of 2023, we
Speaker:
brokered the first option in the international market, which
Speaker:
was a brazilian urea option. And in a grand total,
Speaker:
we brokered over 100,000 tons worth of options so far.
Speaker:
That's amazing. So how does liquidity look in the
Speaker:
market for this year? It seems to be growing steadily. We've
Speaker:
seen more and more options getting traded, and new players keep coming
Speaker:
into the market, and we are hoping another wave of
Speaker:
liquidity will be coming after hearing that CME is planning on listing
Speaker:
Nola urea options in quarter two of next year. Yeah,
Speaker:
a milestone that I'm sure is at least partially due to the hard work that
Speaker:
the Fercs team at FIS has done over the year.
Speaker:
I would say so. I mean, we've worked really hard, the desk as a
Speaker:
whole, to develop the options market and fertilizer. We keep
Speaker:
pushing and trying to share how these
Speaker:
options and how to use them to manage. People can use them to manage
Speaker:
their risk, and we just keep chugging along
Speaker:
on so. All right, so you've given us a phenomenal
Speaker:
overview of the work that you and the FIS Berks team have
Speaker:
done this year to end. I want to ask you a bit of a personal
Speaker:
question, and that is, George, how did you end up
Speaker:
in first options, of all things? What interested you in this field?
Speaker:
So, in my previous role, I was working with grain risk management,
Speaker:
working alongside farmers and ranchers, kind of manage the risk both in the grain
Speaker:
and the livestock market. And I recall a conversation I had
Speaker:
in 2022, and I had a farmer
Speaker:
I was talking to said that I love to lock in my
Speaker:
December 23 corn because it was over $6. But
Speaker:
I don't know what my input costs are going to be, and I don't know
Speaker:
what the cost of my fertilizer is going to be. And I asked him, well,
Speaker:
why don't you call up your local grain elevator or local co
Speaker:
op and get up a quote? And he says, they can't give me a quote
Speaker:
because they don't know what the price of their fertilizer is going to be. So
Speaker:
I realized that them not having those tools,
Speaker:
whether it's both or the general market not having access
Speaker:
to futures and options, seemed to me like a real problem. And
Speaker:
if I could help in any way, kind of provide ways for these tools to
Speaker:
become more openly available and more
Speaker:
open to the general public, I see myself as helping kind
Speaker:
of solve that initial problem so that the
Speaker:
former, next time he calls up the elevator, the co op, he can get a
Speaker:
quote on FIS fertilizer and then he can go forward
Speaker:
with locking in new crop corn sales. That was beautiful,
Speaker:
George. Thank you so much for joining us. And we can't wait
Speaker:
to hear about all the milestones that you and the FIS desk
Speaker:
hit next year. We will be looking forward to sharing it with you guys
Speaker:
and continue to push know hopefully next time we're going to
Speaker:
have another option even traded or maybe and have him list the next time
Speaker:
we're on freight up. Major ups to George Houston, thank
Speaker:
you so much for joining us. Okay, well, I appreciate your time
Speaker:
and I'll talk to you later.
Speaker:
Now let's catch up on the Ferris complex with how pay.
Speaker:
We still have some information to get out of you for the remainder
Speaker:
of 2023. The first thing that we need
Speaker:
to talk about is that $3 correction two
Speaker:
weeks ago being recovered by
Speaker:
$4 in this last report week. So
Speaker:
the big question is, do you think that iron ore is going to stay above
Speaker:
135 for the rest of. The year compared
Speaker:
with October or early November when iron ore moved
Speaker:
to moved $9 or even about
Speaker:
$10 per week? This is a small change and we can see
Speaker:
clearly iron ore volatility now is decreasing. That's
Speaker:
what we expecting like during the past two weeks. So does
Speaker:
the open interest and volume. This is a typical year end
Speaker:
scenarios because of less traders want to bet on the
Speaker:
direction of market and as well less physical traders on
Speaker:
the market. And although the market has yet any big
Speaker:
correction, we insist on the valuation above
Speaker:
135 is too high. The year high
Speaker:
normally don't show up in December without any big fundamental
Speaker:
change. If we look back for the last ten years, but
Speaker:
the macro support and stimulus on the other side
Speaker:
hasn't stopped. In China, there'll be more housing as well as
Speaker:
potential interest cuts before and
Speaker:
after new year and expected by Bloomberg
Speaker:
analysis. So in general, we don't believe iron ore is at
Speaker:
huge risk from a big correction, like for
Speaker:
example 20% or even 10%. But we think the
Speaker:
high valuation at current level is not sustainable
Speaker:
and a small correction at some point would help the market to turn to a
Speaker:
healthy side thinking about the whole industry chain because
Speaker:
steel mills fis suffering from a loss for three months.
Speaker:
So my conclusion is the high level is not going
Speaker:
to last through the rest of the year.
Speaker:
Oh, hot off the press.
Speaker:
These are how pay's predictions and is that view supported
Speaker:
at all by the fundamentals? Yes, I think the view
Speaker:
that the high level is not going to last through the rest of year
Speaker:
is fully supported by fundamentals because for example,
Speaker:
we're seeing peak iron consumption
Speaker:
representing the demand side of iron ore
Speaker:
directly on a daily basis, is decreasing from
Speaker:
2.48 million tons to 2.29 million
Speaker:
tons and is going to 2.1 million tons
Speaker:
by the end of year early next year. So marginally
Speaker:
decreasing but at slower pace than previous
Speaker:
years. However, the shipment from the other side
Speaker:
is increasing to represent the
Speaker:
supply. So higher supply and
Speaker:
slower demand is definitely equal to a
Speaker:
slight bearish outlook from the current level. But
Speaker:
the only true demand from my side fis cargoes from
Speaker:
Brazil, that demand is increasing because
Speaker:
concerning on the rainy weathers, but the overall is decreasing.
Speaker:
The actual trade was more volatile below
Speaker:
$125 rather than any
Speaker:
trade above this level because below
Speaker:
125 levels we see a lot of massive trading,
Speaker:
like three to four lakens per day on the
Speaker:
seaborne side and a lot of
Speaker:
chinese rent settled on the port side as well. But now
Speaker:
we are seeing like probably one lakers per day and
Speaker:
two lake maybe three or four lakers per week and it's
Speaker:
all flat price. They're using the same premium, a
Speaker:
little bit higher on the fixed price. So I
Speaker:
think any level above 125 is
Speaker:
not sustainable. So I think the fundamental outlook
Speaker:
is totally telling. The current valuation
Speaker:
is at high risk and
Speaker:
it's too high. And any
Speaker:
notes about 2024 that you want to share with our
Speaker:
listeners? I remember that from
Speaker:
the last maybe two podcast before
Speaker:
we had outlook about the
Speaker:
prediction range for the iron ore in 2024. We are
Speaker:
going to maintain that range level. I believe the high is
Speaker:
140 and the low will
Speaker:
be $95 and I think it's a
Speaker:
higher average than 2023
Speaker:
and it have a higher slight higher
Speaker:
highs and slight higher lows than 2023.
Speaker:
And I think the high fis
Speaker:
potentially appear in the first half of
Speaker:
2024 as more of the
Speaker:
stimulus come out before and after
Speaker:
March, when it's China political
Speaker:
conference of the year and the
Speaker:
expectations of us interest cut is more
Speaker:
likely to happen by mid year. If that's going to be the
Speaker:
timestamp, there will be a lot of stories telling. So that's going
Speaker:
to support the volatility of our iron ore. That's why we're potentially seeing the
Speaker:
high in the first half of 2024 and the
Speaker:
low appear in the rest half of the year. Fis, because of
Speaker:
supply from non major miners,
Speaker:
is growing in the next half. And China
Speaker:
domestic miners is expected to
Speaker:
increase some of the projection level in the second half of the year
Speaker:
next year. So that's why we believe
Speaker:
the range of the iron ore index in the
Speaker:
next year. And we'll have you by our side to make sure that
Speaker:
we stay up to date on whatever happens.
Speaker:
How you're a gentleman and a scholar. It's been a
Speaker:
pleasure. We'll see you in 2024. See you guys
Speaker:
in 2024. Thank you for the blondies
Speaker:
with us in 2023. Thank you all.
Speaker:
Well, that's it for us this week. Thank you so much for listening
Speaker:
and thank you for being with us this entire year. It's been
Speaker:
an absolute honor to host this show and frankly, we wouldn't keep doing it
Speaker:
if we didn't know you guys were listening. So, because you insist, we
Speaker:
will see you next year until 2024. Happy
Speaker:
holidays. Break up.
Related Episodes
Slumps, bumps and oil pumps
We'll be exploring the reasons behind the substantial increase in the Cape size index, analysing the concerns surrounding the iron ore market, and discussing the impact of macroeconomic news and geopolitical tensions on market dynamics.
OPEC is NoPEC and EU ETS explained as shipping companies face new regulations
TL;dr EU ETS, and Energy Alternatives Welcome back to another episode of Freight Up, the podcast where we deep-dive into the latest trends in the shipping and commodities markets. EU ETS explained As shipping companies face new regulations we've got a freight container-full of insights awaiti...
Bloomberg report reveals slipping physical prices in crude market! And a weekly market report.
Welcome back to Freight Up! In this week's episode, we're getting an update on the impact of the Israel-Hamas war on the crude market.