Conflict & Commodities: Impact on Freight Rates, Iron Ore Demand, and Oil Prices

This week on Freight up, we chart the movements of the dry freight markets as

the index starts to claw back some of the lost territory. The same

is true on iron ore as we hear from Hal, our iron ore

oracle. And we get the update on fuel oil on its

price changes as oil markets are hit by geopolitical volatility.

Freight up.

Hello and welcome back to freight up. My name is Jess and this episode I'll

be joined by Davide. Hi Jess, glad to be back. How are you doing?

I'm good. Let's navigate the seas of freight and commodities together

then. Indeed, this week I'm also joined by Ben, Archie,

and Hal as we review our main markets of dry freight, oil and iron

ore. Before we get into the nitty gritty of the market specific updates,

let's take a look at the latest news as well as index movements since our

last episode. The world breathed a large

sight of relief after the last escalation in the Middle east

ended with a limited counterattack by Israel following Iran's

large scale missile launch. In other commodity news,

Coco has hit new record heights, lifting to

10,000 pounds per tonne as poor west african harvest add further

fuel to the supply concern fire oil markets get

political in the United States as a pause to the new

LNG projects by Joe Biden is picked up as a

key wedge issue by the Trump campaign in this wing state,

Pennsylvania, and all the talk has been about us inflation

data, which has proven to be more stubborn than analysts were

expecting. The result has been a shift to a more hawkish

stance by the Federal Reserve officials. And before we get

into the detail of our major commodity markets, lets take our

usual look at the broad market movement of the week. Its been

two weeks since the last podcast and the markets have been moving quite

a while on the drive rate side, the indexes have

been a tale of two halves for capes the 9th to the

16 April, so a 22% increase in the index to

$21,819 a day, but then a fall

of 7% back down to nearly $20,000

in the past week for panamaxes and supramaxes

has been a tale of increasing gains with an increase of 7%

and 4% two weeks ago, up to positive moves above

9% in the past week, ending with the P five Tc at

17,222 and the S ten Tc at

$15,735. Iron ore has

been slowly making its way north, winds clawing its way back

up above the 110 ton level, closing

at 100 1365 yesterday

and on fuel oils up and down for a couple of weeks. Sync

383 breaking through the $500 level and

before sinking back down to $498 yesterday. On

the single five, we close at $630, marginally

down on the week.

And now let's talk dry freight with Ben Klang. Ben, thanks for joining

us again this week. Thank you, Jess. Thanks for having me. No

worries. We're excited to have you on again. Normally

we hear of big moves in the dry freight market, but it seems things

have calmed down compared to some of your past updates in recent weeks.

Yes, exactly. Yes. Things are always interesting in the dry freight

market, but a bit less volatile than when we're getting

those 30% plus movements in the index. It's been a couple

of weeks since the last podcast. What have we seen the levels

do? Well, you. Let's start with the Cape. The Cape market for the past fourth

night has been like a double hump there, camel. And

by that I mean that, you know, when you look at the charts of

rates, we had two weeks of mid week highs with

lows either end of the week. For example, the May contract

hits weekly highs on Thursday two weeks ago at

28 750, and then last week at Wednesday at

29.325. Those peaks then saw some

profit taking and sellers entered the market to

depressed rates going into the weekend for both weeks. Then

to see May closed 25 87 five last

night. Index wise week on week Thursday to

Thursday. This week the five TC index

was down 7% from a gain of

22% basically two weeks ago from the

9th to the 16 April. So somewhat of a

reversal in fortunes for the big ships. Fundamentally though,

we've seen an improvement in market sentiments in both basins

thanks to robust chinese coal and iron ore demand from Australia,

coupled with a better fixture report from Brazil and West

Africa pushing rates up further. The

Panamaxes were similarly camel shaped all through to a

lesser degree than larger ships, a positive last week

for Panamaxes, with rates firming up, driven by

research interest from the US Gulf to the continent and in

mediterranean regions, along with a consistent grain demand. In South

America, grain shipment volumes improved significantly

with a total volume reaching 56.7

million tonnes, and that's a weekly increase of

21.7% after weeks of

decline. Additionally, coal shipments by Panamax

vessels witnessed a notable increase of

13.7% totaling

13.6 million tonnes. And it will come to no

surprise that we've seen week on week index gains of seven and

10% for the two last weeks. Last but not least, my

favorite, the supermaxes, which decided the two last

weeks to be different to the future trading on the larger vessels.

If you take a look on the month price curve over the past two weeks,

you get a pretty consistent moving up. The May contract

opened at 14.5, closing yesterday

at

160. Cal 25

contract chalked up some smaller gains, ending the week

at 13 100. And that's up nearly

$1,000 from two weeks ago today.

Close at 13 150 last night.

So that was the levels. Could you please tell us what we're looking at for

volume in the last couple of weeks? Yes.

Cape and Panamax's open interest decreased along with falling

prices, the downward trend encouraged by long positions

closing out. As of April 22,

Cape five tc stood at

174,916.

And that's a decrease of

750 week on week and then on

the Panamax 40 c at

175,309.

And that's -360

week on week, while Supramax ten tc

increased to

84,120. And that's

plus 990 week on week. In

terms of voyage routes, higher trading interest was

absurd in the c five, with a totaling of

5.995 million tons changing hand.

April saw the most liquidity with good interest.

Also noted on the May and some small clips

traded for June 24 and Q three Q

424. Additionally, 75

kt of June contracts were traded on the c

three routes. Thank you, Ben, for that update. I look forward

to hearing where we end up on our next market update from the

dry freight market. Thank you very much, Jess.

And now let's talk about iron ore with Halpay.

Hal, thank you very much for joining us again today. I would like to

ask you a question. The first one is about the sharp drop that we've witnessed

in the first two days of the week. Can you tell us something more about

the causes of this drop? As we expected last

week, we mentioned top reversal risk when the market

is really high. And I think the drop

of this week is due to the squeeze of the steel margin,

which dropped from 212 yuan per ton to

28 yuan per ton. That's almost 90% of drop

within two weeks. And for iron ore, given a

dollar more growth on iron ore, which would squeeze the

marginal profit to zero for steel mills. So

thus steel mills tend to use the very

conservative strategy by managing the costs

of iron ore buying low instead tracing high.

That's why we didn't see a lot of physical trades when the iron

ore rebound. But we see a massive trade when the iron

ore corrects during past two or three weeks. And I think

on the other side, which is macro side, it's a speculation

on the geo risk in Mideast, but when

that risk is off, then the price should

drop in line. So those trades were mostly short run

money. So that's why iron ore has a correction during the first

two days of the week. And do you think that this

correction will be sustainable short, long, medium term?

I don't even think the correction will be sustainable in short

term because we're seeing a lot of indicators

improving, including the steel orders. And the

overall demand of steel could hardly drop in a high

percentage, in a quarter length or year length. And the

demand is stretched for longer days instead of. We're not

seeing any of the peak construction season for like

month or two like previous years. We see a really high peak hour

consumption in April and May. Well, probably not be able to see

it this year, but one thing we're going to

see is we're going to see a stretching demand

over the next eight months or next seven months of the

year with a little slight higher average number,

instead of a very warm season or very light,

a very quiet season. So that's why we're going to

probably see some of the recovery on iron ore, because the

fundamental side, it's turning good. It's still like

doing not, it's still like doing worse than the same period over last

year, but it's better than March, so it's becoming better and better.

So we think the correction won't be sustainable. Thank you very much.

How insightful, as always. And I wish you a very nice day. Thank

you very much for joining us again. Thank you, David. Aya, you too, have a

nice day. And now let's talk about fuel oil

with the people's broker, Archie Smith. Hi, Archie. Hello. Where are you?

You're normally here with me. Yes, I am in Dubai,

fortunately. Getting some sun. Yeah, well, not

really because I'm in the office all day. I was pale as a sheet of

paper. Oh, that's a shame, because obviously the. Hours are

slightly different. We get out of here at like 08:00 p.m. So the sun's already

gone down. Do you wake up early enough to catch some morning sun? Well,

I could, yeah, I suppose I could. But I'm enjoying the lanes. Fair enough.

All right, should we get into it? Let's get into it. Far away. Why

are crude oil prices falling despite the turbulence in the Middle

east? Is it something to do with the easing in the risk premium? Yeah,

I mean, 100%. Right. I mean, a lot of market

participants would have expected crude to really rally after the

iranian strikes against Israel. And then Israel's

retaliation on Iran, which happened on

Friday. I mean, all thats happened kind of this week is crude prices

have just fallen and fallen. And I think theres a few analysts from Bloomberg

who have actually estimated a rather extreme war

premium of $25, which effectively means if

youre looking at the supply and demand fundamentals, crude should be

priced around $66 per barrel. But obviously were pricing

between the 85 and 90 range, which means that a dollar 25

per barrel war risk premium has already been priced in.

And the reason that were coming off is because the strikes in

the Middle east have been, well, it has been fairly minimal

damage, basically. Obviously Iran fired some 300

drones and missiles, Israel with very minimal hits.

And likewise for when Israel retaliated, theres not been much damage

reported. So I think markets kind of interpreted that as they've punched

each other. Nothing's really been done. The risk of escalation is

at the moment very thin or minimal. So hence the,

the price of crude has been coming off fire via easing in the, in the

war premium that's already been priced in.

All right, thanks, Archie. Why have we seen fuel oil cracks rising

this month? So I think this has got something to do with

the amount of high sulfur crude in the physical market.

So obviously we've had a lot of OPEC cuts at the back

end of last year and into this year as well. And a lot of the

crude that comes out of the Middle east is heavier crude, which means it's higher

sulfur content. So with less of that in the market. But basically the

higher sulfur fuel oil often comes from the

high sulfur crude when it's cracked. So we've less of that in the market. We

are seeing the high sulfur stuff tick up in price. I think this has

been reflected regionally, particularly in the

east west, in the high sulfur east west, which is the difference in price between

the european high sulfur fuel and the singaporean high sulfur

fuel. That's quite high at the minute. That's around

$18, meaning the Singapore high sulfur is about $18

per metric ton more expensive than the european equivalent,

again, because Saudi Arabia and places like that

are keeping hold of a lot of their high sulfur stuff

for power generation and obviously just in line with the

OPEC cuts. That's why I'm seeing a regional difference there and that's why we're seeing

the high self tick up. All right. Thank you, Archie, as always,

it has been a pleasure. Thank you very much. It has.

And I will see you in the flesh next week, I would imagine. Indeed. See

you then, Archie. And that's it for this

week. Make sure to subscribe by clicking the subscribe button on

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