Falling capes amid Chinese stimulus

Freight up. Hello and

welcome back to freight up, the freight and quantity podcast of freight investor services. My

name is Jas and together with Davide we will be your hosts as we navigate

our major freight and bulk commodity markets. Hello. We are

now back in the booth and resuming our usual programs, so

we will have a chat about the latest dry FFA

movements. We'll also hear the latest news about the mid

October iron ore correction from Hao Pei, and we'll end up with

Archie Smith and his stake on the fuel oil

markets. But as usual, let's first look at the latest index

and market movements of the last two weeks.

Core consumer prices in the US, which exclude items such as

food and energy, rose by 0.3% from the previous month in

September, up from 0.2% increase in the prior

month and ahead of market expectations. The annual figure went

higher to 3.3% in September from the three year low

of 3.2%. The UK economy expanded

0.2% month on month in August after no growth in

July June and in line with expectations, the annual inflation

rate in the UK fell to 1.7% in September, hitting the

lowest since April 2021. In Asia,

the chinese economy expanded 4.6% year

on year in the third quarter of 2024, compared with the market

forecast of 4.5% and a 4.7% rise

in the second quarter. Industrial production grew by

5.4% year on year above market

forecasts and retail sales hedged higher to

3.2% year on year in September, up

from a 2.1% from the previous month, beating the estimates

of a 2.5% raise. In Japan, the annual inflation

rate fell to 2.5% in September, down from

3.0% of August. This is the lowest

reading since April. What about

the market movements of the last two weeks? Let's take a quick look.

Cape sizes have been on a declining trend since the beginning of October

and there seemed to be no halt in sight. The C five tc went down

from $24,000 786 on Tuesday, the

8 October, to the 16,654 of

yesterday. Slowly but surely, Panamaxes are also losing

ground. The P five tc hit

$11,339 yesterday, down from

nearly 13,000 of two weeks ago. Smaller ships have

mostly been stable. The S ten TC has only moved downwards in

a $200 range from

13,938 two weeks ago to

13,757 of yesterday. The

HS 70 C moved up instead $200

and traded at $13,025 yesterday from the

$12,911 of Tuesday the 8

October. And now let's talk about drive freight with Ben Klein.

So Jess, before we get into the thick of it talking about our

dry FFA market, I would like to outline the

fact that our research team wrote a very interesting article which we have published

on our LinkedIn profile on the FIS page. And then I will

encourage all our listeners to actually have a look at this article which

is looking at what was the rather I would say

mute reaction to an actually and very underwhelming

response by the chinese authority. So this has tracked down

capes that has dragged down iron ore. So like we've seen a lot of reactions.

So maybe we can talk about the price movements in the dry

FFA market last week. Yeah, absolutely, Davide. I would

say you nailed it. That underwhelming response

to chinese stimulus package definitely paid a part in

some rather big losses for last week. The

prompt futures on the c five TC contract shared

over 20% of their value. So in the Cape market,

the week started off fairly quietly, but then in the

evening sessions and big movements started to happen.

Nav dropped from twenty six thousand one hundred dollars to

twenty four thousand two hundred and fifty dollars. This continued into

Tuesday, which saw Nov fall sharply to

$22,100 and some support

emerged late in the day which allowed the market to take a bit of a

breather. But on Thursday the market remained under

pressure again with Nov hitting lows of

19,500. Though the

afternoon session there was some rebound and Nov climbed back

up to $22,000, closing near the day's

highs. Friday began on a positive note, but the optimism was short

lived. Sellers drove the market down and Nov ended at

$20,000 as traders cut their long positions before the

weekend. What about the other vessels then?

So if we look at the Panamaxes, the week was generally negative as

well, with losses occurring early before some recovery

towards the end of the week it was quiet on Monday and

there was weak demand coming from the Atlantic and the spillover from the Cape market

sentiment. So following the index release, which

was

-200

Nov had fallen to $11,750.

This downward trend persisted into Tuesday, and Nov and deck both

fell to $10,950, while Q

125 tested the $10,000 level.

Wednesday saw some volume in Nov at 11,000,

but heavy selling quickly pushed rates down to

$10,400. Thursday saw some

mild recovery, with Nov trading up to

$11,600 with solid volume

and closing. The day supported. Friday, though was much slower and

the prompts lost some ground again and Nov slid back down to

$11,300 and the market closed near the

day's lows. Smaller ships the supermax

is. This time the market was a bit more mixed, with the largest

movement on Monday, which was down, and Thursday

back up again, resulting in minimal change overall.

The week started under pressure, dragged down by the larger vessels

notable front end losses, and Nov hit lows of

$13,050. On Wednesday

we saw an early decline before bouncing back up,

which kept November roughly unchanged from the end of the day

before, which was around

$13,075. This movement can

probably be attributed to buying from physical players and spreads from the handy

size. On Thursday, the market saw some upward

momentum following improved sentiment in the Atlantic, although

the Asia area did still lag. Post index movement

saw Nov back up to $13,850 and

Friday was quieter with low trading volume. November slipped to

$13,350 and closed off the days

lows. Now let me ask you

the question that you're usually asking Ben. What about volumes? Ben

really missed out this week because it was one of the busiest trading periods for

the FFA market so far this year. Wow. So

the total weekly volume has soared to

93,780 lots. The Capes

led the charge, contributing a substantial 460,000

lots to that total. And despite the intense

activity in these larger vessel classes, trading volume remained

steadier for the smaller vessels. The supermax contract saw a consistent

1100 lots traded daily, while handy contracts

average around 100 lots per day. The options market also

experienced a flurry of activity, with the Panamax options taking

the lead, trading 6140 lots over the week.

The voyage routes were equally active. The C five route, which is the West

Australia to China route, saw particularly high liquidity, with weekly volumes

reaching nearly 7.5 million tonnes. Now I

know what's in all our listeners mind, they're probably thinking,

one moment, where are they getting all of these numbers and all of

this data? But it's great because we've got an app for it. Oh really? Which

one is that? Fis live. You heard of it? Sometimes,

but maybe you can tell me something about it. Well, it covers

15 plus commodity and freight markets. It has

pricing data, some

reports, technical reports as well. We've got some technical charts. I think

it's time you get on it, Davide. Okay, so if you're

getting tired of listening to our voice and you just want to read something,

stop. Don't get us cancelled. Just log in on the

FIS live app.

And now we have Haupei, our senior analyst from the Shanghai office

of Freight Investor Services. So let's have a look

about your favorite market, which seems to be an or.

We've seen some correction in the mid October

for iron ore. So maybe you can tell us what was the main

driver of this correction and maybe do you think that this

trend will be sustainable in the short term or in the midterm? What do you

think? As we mentioned in our reports previously,

in the mid run trend only showed wide fluctuations

with decent volatility. Iron ore market in

particular compared with July to September.

Longer fundamental indicators iron ore see high

delivery and high port inventories in Q four.

However, the mills in China were using up in fast

pace from late December and there were

obviously much news going on Q four, including the Mid

east tension, us presidential election and China

end of year polity bureau and many unknowns.

So the answer is not sure from mid run. I'm not convinced that

the trade will last for even two or even one week

or so. I think it's just iron ore keep

in its good volatility and in the wide range and

let's talk about in short run and we're

giving a no to the answer because the intraday

drop was more like a lot of investors saw BBG

News that China will issue less than 1 trillion yuan

2024. And I think just a game of

wording because there's only a month and a week left for

2024. They could carry out those stats in the first day of

2025 and it's becoming the

liquidity for the next year. So I just think it's a wording

game. And plus we're seeing fast

improving on the financial market, on equity market, in

other industrial market and I think Aaron or

probably also supported by hot metal consumption increasing in

China in the next few weeks. So I think there

will be recovery on the back of the fast correction. Of iron

ore. And looking at the Q four, what do you think are the main

indicators that we should note? I think the major

indicator on fundamental side has to be the hot metal

consumption in China and it's published each week. So it's

a high frequency data and if it started to drop when

the iron ore rebound should theoretically caught an end.

However, this is really depend on if the

expectation has already priced in. For example if the price

goes first and drop like ten to $15 before we

see a drop in hot metal consumption then the downside room is

limited and at least 30% of China provinces

entered pre winter stocking period. And as a result traders

starts to weigh the value of steels and sells

steels before they actually see the demand of change and iron

ore investors and need to care more about steel

market than any time of the year in Q four because it's

also worth noting the winter curve strategies in China we

yet to see any at this point of time. So from

my perspective, I don't think there will be like a massive

winter curve this year. And for other products like you mentioned

about coproducts if the price is going up significantly on

the coast because entering the winter and globally we need to

take attention to the turkish scrap which corrected from the

high in October. But the market is experiencing

a reversal after a few year low rated in August. I think the

market is reversed and as well the same condition

happened in european HRC and I think this semi finished

deals and the finished deals saw a slow growth in or resilient trend

Q four. So we should keep an eye on those products

as well. So I think those are the interesting indicators worth

noting Q four so far. Thank you very much, Hal. And you have

mentioned the reports which we would like to remind to our

listeners that are all available on the FIS Live app. So if

you want to read more of Hau stakes on iron ore and on the macro

markets more in general, just like have a look on the FA's live

app. And now let's

talk about fuel oil with Archie's meat. So now let's have a look

a little bit about what's happening in the oil market. So we had

some weeks of like pretty extreme brand volatility. So would you say

that the benchmark has settled down a little bit now or not?

Yes, to an extent. Sort of the last couple

of weeks after some serious swings, it's been pretty

range bound. In fact, all up until yesterday. There was

sort of an anomaly yesterday afternoon when Brent spiked about a dollar and a

half in the space of a couple of minutes, which actually sort of broke the

range that we'd been seeing kind of spiked up to like 76 levels,

$76 per barrel. This is the front month, Brent. I mean, we was all expecting

a Middle east headline. That's normally, you know, when we see the Brent market act

in that way, we're normally straight to the news to see a Middle east headline.

And in fact there was actually no headline at all, which was very strange. We

did have a good search. There was no news that like triggered this spike.

Exactly. There was no immediate major headline. I mean, we, you know, as soon as

we saw Brent start moving like that, we was like, okay, missile strike. Something

along those lines of. So I think apart from that sort of one off

instance, yesterday afternoon. Yes, it has in

relative, in comparison to how it was sort

of earlier in the month and back end of last month, it has

simmered down a little bit, but it's sort of a case of everyone

sitting on their hands and still the gaze of the market is

very much on what is Israel going to do and how

is Israel going to retaliate. Obviously, they have come out

and said that they're not going to target iranian oil facilities, which sort

of cooled the market off massively. But I think people are still

expecting something to happen. So it's very much all eyes on that. And then we

go from there and. On the high sulfur

fuel complex. That is also, correct me if I'm wrong, I mean, it's also been,

like, quite crazy this week. So do you think that actually maybe

you can tell us more about the reasons that are maybe causing this particular strength

in the Rotterdam 3.5% fuel? Currently, the Rotterdam

3.5% crackhead is trading around like

-250 per barrel. That's certainly the highest

I have ever seen it in my sort of two and a half years in

the market. It rallied about two and a half. I think it rallied about $3

yesterday alone. And then, like for the, for what we just said earlier, it was

basically without any sort of specific trigger. Yes and no. So

there was, again, there was no real major headline that came out that

saw a massive Brent crack rally. It was sort of trading that way all day

long. It wasnt like an instant thing. What happened with the crude? I think,

having asked the market, were theorizing that

a lot of it is to do with just a serious lack of the high

sulfur fuel oil in Rotterdam and in northwest

Europe. Theres a lot of backwardation in the european

high sulfur fuel oil at the minute. And because of that,

its creating less arbitrage opportunity from

wherever there is more high sulfur supply. So us Gulf

coast and Med, for example, I think the med journey

to Rotam is like ten days, us Gulf coast, maybe 21 days,

something like that. So because it's such high backwardation, by the time that oil

is getting arbitrage from those hubs, particularly US Gulf

coast, by the time it's getting to Rotterdam, it's sort of trading

$20 lower, $30 lower anyway. So the sort of room for

arbitrage is not there. So therefore, Rottland is sort of on its own. And

also, you know, looking back, it's still not getting the supply from Russia. Russia was

always such a massive producer of sour crude, which is what a lot of the

high sulfur fuel oil comes from, and obviously that's still not getting

imported to Europe, right, as that's going straight to the Middle east and Asia.

So I think, yeah, a lot of sort of supply issues for the high sulfur

fuel oil in the Rotterdam hub is causing that issue. Okay. Thank you very

much, Archie. No worries, David. I thank you for having me.

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