Freight Up! (And iron ore DOWN)

Hello and welcome back to Freight up, the freight and Commodity podcast of Freight

Investor Services. I'm Jess and together with Davide, we will be your

hosts as we navigate our major freight and bulk commodity market. Welcome

back. Hello everyone. So we are witnessing a

resurgence in the freight market and we'll be chatting with Ben Klang about it.

On the other hand, iron ore has pulled back from his recent highs and how

P.E.I. will shed some light on this. Finally, Arcemeet

will tell us about the latest news on the

fuel oil market. But first let's have a look at the main macro news of

the past two weeks.

Donald Trump has decided to spend military aid to Ukraine

as pressure increases over Ukraine's President Volodymyr

Zelensky to make concessions for a peace deal. On the other hand,

European Commission President Ursula van der Leyen has unveiled

the Rearm Europe plan, which could mobilize around 800 billion

in defense spending. Additionally, President Trump has

imposed an additional new tariff of 10% on imports from

China and duties of 25% on those from Canada and

Mexico. Beijing has announced countermeasures of 10 to

15% on American agricultural goods and Canada has unveiled

tariffs of on 107 billion of American

imports. Mexico is expected to follow up soon. The

UK's annual inflation rate surged to 3% in January, the

highest since March 2024, up from 2.5%

in December and exceeding market forecasts of 2.8%.

Meanwhile, the S&P Global UK Manufacturing PMI

dropped to 46.9 in February, down from

48.3 in January. The revised higher from preliminary

estimates of 46.4, indicating the sharpest

contraction in the sector since December 2023. On the other

hand, the S&P Global UK Service PMI edged up to

51.1 in February, surpassing both January's reading

of 50.8 and market expectations. In

Japan, the annual inflation rate climbed to 4% in

January, up from 3.6% in the prior month, marking

the highest level since January 2023. Across

Europe, France's annual inflation rate dropped sharply to

0.8% in February. This was the lowest since February

2021, down from 1.7% in January and below market

expectations of 1%. In contrast, back home in Italy,

inflation rate rose 1.7% in February, up from

1.5% in January. Aligning with market forecasts.

Italy's GDP expanded by 0.7% in

2024, maintaining the same growth rate as the previous year and

reflecting an upward revision from earlier estimates of

0.5% which had been adjusted for the impact of

four fewer working days. What

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

look. So, following the Oscars, the award for the biggest mover of

the past two weeks goes to the cape size. The

C5TC surged from $6,282 two

weeks ago to to $16,328

yesterday, a whopping 160% increase.

Panamaxs, however, haven't followed the same trajectory. The

P5DC moved from $9,375 on

18 February to $10,400 on the 25th,

only to drop back to $9,218 yesterday.

Supramaxis have made some gains, with the S10TC climbing from

$8,239 two weeks ago to

$9,035

yesterday. Handy Sizes shows a similar trend, with

the HS70C rising from

$8,989 on 18 February to

$9,078 last week

and edging up to further $9,860

yesterday. Welcome back to the podcast,

Ben. How are you doing this morning? Yes, thank you very

much, Jess. I'm doing well. It's been an interesting reporting

period, so I'm looking forward to driving into the latest

market moves. All right, let's get straight to it then. So the Cape

market has finally gained strength after an extended

period of unseasonably low rates. Can you walk us through the recent price

movements and what's driving the surge?

Absolutely. The Cape size market

actually supporting the dry FFA market this reporting

period with strong momentum in both basins

in the Pacific in particular, has tightened

significantly due to steady demand from miners and

operators. Looking at the Kepler data, Australian

weekly iron ore shipments surged to 16.2

million tons, the highest level recorded this

year, and compare that to the four

weeks moving average of tons 12.4 million

tons. This momentum pushed up the

March contract from 12,800 on

February 19th to a peak of

19,000 8:50 on March

3rd, marking a 55%

increase. However, concerns over tariff

has introduced a kind of bearish sentiment, pulling the

March contract back down to around

17,400. Similarly, the

Q2 contract rose from

19,250 to 21,000

and a quarter before fluctuating back to around

19,900 as of yesterday.

Looking ahead, do you see the strength continuing for the Capesize earnings?

This optimism that rates will remain firm

through April, though they're expected to align more with the

2023 levels rather than last year's. High

demand remains strong with the total cargo volumes projected to

rise by 8%, potentially reaching

17.5 million tons per week. And if you look

at the C3 Brazil China route shipments

totaled 5 million tonnes last week and are forecasted to rise

to 6, maybe 6.5 million tons over the

next two weeks. Additionally, expectations for further

stimulus measures from China's National People's

Congress could support market sentiment

throughout the year. So while the Capes are strengthening,

Panamax's and Super Max markets seem to be heading in the

opposite direction. What's been happening here? Well, it's

kind of contrast. I mean you can say that Cape's really been holding up the

other sizes because there's been a really bearish sentiment there.

The March Panamax contract has dropped from

11,725 on February 19

to 8,800 as of yesterday, while the March

Supras contract has fallen from

11,350 to

9,300. So what's been driving this

decline then? Big picture

here is weak demand is the primary factor. The

Panamax index shed 10% of its value

falling to $8233 last

Friday, while front two

months futures dropped by

$1450 and

$1750 respectively. A key

driver has been the decline in Indonesian coal

exports to China which fell to 2.8 million

tons per week below its four week moving average.

Similar trends have been seen in shipments to India.

Adding to this uncertainty, Indonesia has introduced

new regulations requiring coal producers to

prioritize domestic sale for at least one year,

limiting fresh export cargo

availability. Is there any upside for the Panamaxes in

the near term? Well,

one positive factor is that Brazil's peak soybean

harvest season, which could increase cargo volumes

in the coming weeks. Additionally, with tariffs tension

escalating between the US and China, we could

see more Chinese soybean purchased from

east coast South America instead of the US which may

create more opportunities for the Panamax vessels. So what kind of

volumes have we been seeing over this period?

Last week was particularly notable as Capesize

trading volume overtook Panamax for the

first time this year. We saw

36,830 lots cleared in the Capesize

and 31,500 the Panamax, while

Supermax held steady at 11,590

lots. And then if you looked at the option front,

6,000 lots were traded in Capesize versus 1260

in the Panamax for Voyage Route C5 iron

ore shipments of strong interest with 7.5

million tons traded cleared in Terms of

open interest. As of March 3,

Capesize stood at

159,833 lots, down

15,620 week on week.

Panamax was at 158,

321 lots, down

15,310 and Supermax was

at 74,780, down

7,600 week on week. All right, this is

starting to feel like a bit of a reoccurring theme, but we need to talk

about the tariffs. How are these developments impacting dry

freight? It's definitely a

major concern, Jess. While the full impact remains

uncertain, tariff and trade barriers are

poised to significantly shift trade flows,

particularly in the Pacific. Again, Indonesian

coal and Chinese steel shipments are already feeling pressure. And

the dry bulk market reacted sharply to China's latest

countermeasures against U.S.

tariffs. On Tuesday, China imposed tariffs up to

15% on U.S. agricultural

products, including soybeans, beef and cotton.

Additionally, China suspended imports of U.S.

logs and soybeans from three American firms.

While the U.S. plays a relatively small role

in the dry bulk, it remains crucial for the sub

Cape demand, especially in the grain trades. There's

also some speculation about restrictions on Chinese built or

operated vessels. Could that shake up global trade patterns?

Definitely, definitely. I mean, there's discussions about

imposing additional fees on Chinese built or Chinese

operated ships calling at US Ports.

If this is implemented, these measurements could drive up freight

cost in the in the Atlantic,

disrupt tonnage availability and

shift regional trade flows significantly.

So how does the Chinese policy response fit into this bigger picture?

The Chinese National People's Congress is

expected to announce key economic

policies aimed at achieving roughly

5% GDP growth while addressing disinflation.

While stimulus measures are widely expected, I think

the big question here is whether they target a steel

driven construction supporting dry

bulk demand or focused on boosting

consumer spending. This uncertainty adds

another layer of complexity for the market. Okay, so we've

talked through quite a few risks now. Is there any upside for the dry freight

market? There's definitely potential for a

cyclical rebound in China's

economy which could drive more volatility in the

market. The dry bulk sector is also experienced structural

tightness due to stable bulk commodity

demands and a relatively low order book for new vessels.

If Chinese economy picks up, we could see

renewal strength in freight rates. However, I would

say the short term risks remain high and traders will need to

navigate this uncertainty really carefully.

Okay, well that's a great overview of where we stand

as of today. Thanks for the insights, Ben. We'll be keeping close eye on all

of These developments and we'll be back soon for another update. Thank you for

joining. Thank you Jess. Have a nice day and

see you next time. You too. And now let's talk about

Ionr with howpaid How. Thank you very much for

joining us. How are you doing? I'm good. Good.

And you all good, thank you very much. So we

have seen a significant drop in the iron ore price

this week. So maybe you can tell us a little bit more about the factors

that may have caused that.

Well, iron ore get back gains after a

huge open interest in both DCE and

SGX in particular at high level.

And I think the secondly the market rumored about

There was a 15 million tons of production curve in

China and there are two big mills accepted the target.

You know I think both Australia and Brazil

shipments catch up fast. During the last two weeks the shipment

was up by 15 million tons. So which roughly filled the

gap of cyclone loss. Some of the market participants

expect the loss at least take half a year

or at least two to three quarter. I mean at least a

quarter to fill this gap. So that's faster than

expected. And I think on the macro side the risk

appetite was down for all commodities during the current two

weeks. We see the drop on the

NASDAQ and we see the drop on European equities

and global equities.

Well and I think the other concern is about the trade

wars which happening every day and among a lot of

countries. So we're seeing them

occurring. So I think that's on the macro

side. So the high liquidity commodity saw drops. So I think

that all leads to the significant drop iron ore price

during this week and end of last week. Okay. And

looking at the iron ore market more

specifically about the rest of the quarter, I mean

like are there any changes on the spreads that you can see happening?

Yeah, I think that's what people do currently since the price dropped too

fast too. So there could be very limited

directional chance to enter this market if have nothing

on hands right now. Well I think

it's. I think it's really worth

to wait for for a new run of change on iron ore market.

I mean for example if iron ore drop 7 to $10

more I mean why not think about buyback since

March bring construction seasons in China and all

the production curve doesn't need to happen in the first quarter at least.

So I think the oversell, oversell here

but I don't think that's long enough

in the Q1 as well. And I think the terrific

impact, it's similar to the production curve it's

stretching out for the whole year. It doesn't mean it will

have a solid impact in China,

Asia, US right now or in

the next few weeks. So I think it's

lower the roof of metals instead of just marginal

impact. So I think iron ore should have limited

room to correct purely based on the fundamental market right

now and however we think we should be aware of if

macro market change including if a

10 correction on US or China. I put this more

so that can be huge to the overall sentiment

and we have more than on this regarding to the spreads

and we have more than one time Recommendation when it's

$0.40 last year but during this year

it's a bit of hard to trace

down the low level because most of the time it's

just trading among 60 cents to a dollar.

So I would recommend if the price

level on the front month has dropped to 65 cents for example

it's probably be a good chance to enter and when it's

go back to dollar and it's probably be a chance

to exit. So that's my whole point on the spread trading and I

don't think there should be any like a

clear trading opportunity on

MB65 to +62 because it will

probably stuck in the current level for next few weeks or good

months. Thank you very much. How.

Thank you. Bye.

And now let's talk about fuel oil with Archie's Meat. Archie, thank you very

much for joining us. How are you? Yes, I'm very well, thanky. How are you?

Not too bad. So tell us what is happening on the

fuel oil market? I mean we're seeing crude going down like tanking

actually. Yeah, yeah, massively. It's been a really, really sort of

turbulent. Well this week particularly has been very

turbulent but I think the, the, the weeks prior have sort of been

a, a buildup and this has been the explosion.

So yesterday front month Brent futures

tumbled down to below $70 per barrel. Mark.

Okay. I mean the $70 per barrel quite a big sort of

psychological support level. And this was off

the, it was off the back of a few things. There was, there was new,

there was news that came out late Monday night about OPEC

actually going ahead with their

output increases in I think it's April.

Market consensus was that they weren't going to go ahead with this because crude was

already coming off. You know we were going through you know, 76,

75, 74 heading downwards.

So you know, market thought OPEC want to keep

crude at you know a level that suits them. So

the fact that they're reintroducing some of their supply into the market or. And they've

decided to do so was a bit of a shock to the market. Okay.

And obviously also another major factor that's

playing a part in these, These falling crude prices is

Trump and his tariffs. Oh, yeah. So I did

actually mention it, I think sort of before, around Christmas time when I was on

the podcast. I said that I thought it would be

pretty bearish when Trump came in. And not to toot my

own horn, but it seems I've hit the nail on the head there. And that's

because overall tariffs and all these sort of things and

sanctions, it's protectionism

when it comes to trades. It's overall bearish for global demand. Right. You know, if

US And China are having a big trade war and US And Canada and who

else, you know, these are all these other sort of major economies. If they're

all trade war against each other, global demand in general

falls. And we're seeing that reflected in crude

prices. Admittedly, we've sort of bounced back a little bit this

morning back over that $70 per barrel mark, but we're still sort of

hovering around there. Do you think also that, like, going into the spring,

this may also, like, have like, an impact on the overall energy markets and prices

as well? Yeah, I, Yeah, there could be a little bit of seasonal,

sort of seasonal factors in there, but not enough to sort of move the

markets in the way that they've been moving anyway. I think it's, it's

certainly all eyes on, on US

Tariffs and, and on opec and

obviously we've had in the background as well, which been major in the news is

the whole Ukrainian war

situation. I know that's been sort of stirring up a lot of

drama with the, the fiasco in the Oval

Office. Oh, yeah. But again, that's

kind of, I think that's strictly political at the minute in the sense that

it's, it's not really affecting crude prices. That, that

specific part of what's going on. I think, you know, Russia, Ukraine, war is

already so priced in, there'd be, there'd need to be major, major

moves in that conflict to now affect crude

prices. Something like a peace deal will be something that will.

Yeah, yeah, something like that. Yeah. But at the minute,

sort of the to and fro there is. Is not really going to affect

markets. And then, I mean, fuel as

well, if we look in the bunker market has been, it's been super volatile.

Yesterday was, was crazy day I think fuel overall feels very

heavy, a lot of things coming

off. So all of our sort of Sing.5

and Rotterdam.5 slot prices all

much lower this month. And that's because not only is crude down, but

also fuel cracks are down. So

when you look at fuel oil prices, it's determined by crude level and

crack level and your crack level is the refining margin.

Sometimes when crude comes off, crack levels increase. So

it sort of keeps the flat price steady. Okay. But when you've got both of

these factors falling dramatically, that flat price

really, really comes off. So, you know, I think from a sort of

shipping hedging perspective, you could look at it as an opportunity to, to, to

lift some back end stuff at really low rates. Okay.

But then, you know, it's, it's whether you take the view is, is it going

to come off further and that sort of, you know, crystal ball

moment, you know, the fuel spreads are really tight.

So the time spreads between, between April and maybe point five is

only like a dollar at the minute. It's been trading less than a dollar as

well. And

yeah, I think just overall, I think another point actually to,

to draw on before I finish is how

the, the sort of European complex has been holding up

a lot stronger than the Singapore complex. So

obviously everything's been coming off, everything's coming weaker, falling.

But the Rotterdam fuel oil, especially if

looking more at the vlsfo, the very low sulfur fuel oil, it's

coming off far less than its Singapore

counterparts. And I'm not too sure how much longer that

European strength can, can go on against the

Singapore counterparts. So it'd be interesting to see sort of how that plays out in

the next few weeks. Okay, well, if you find this crystal ball, just like let

us know. Yes. If anyone out there has got the crystal ball, please get in

contact. Thank you very much, Ash. It was a pleasure. Cheers. Thank

you. And that's it for this week. Make

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

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

app FIS Live to make sure you never miss any freight and quality

analysis from fis. Thanks for joining us. And we'll be back in two weeks

with Freight and quantity podcast. Freight up. Goodbye.