Fuel oil arbitrage and Capes take a breather

Iron ore continued its drop after last week, and the

$116 to $118 levels look

far. Has anything fundamentally changed into these markets?

Hao Pay gives us his analysis and tell us what we could expect in

the near future in the freight market. It looks like that the story is

different from the last few weeks. Ben Klang from our Copenhagen

office gives us the main takeaway of a rather choppy week in

FFAs. And last but not least, Archie's meet looks at the

latest development in the oil market and what some key data

releases mean for it. All this and more in our episode of

Freight up. Freight up.

Hello and welcome back to Freight up. My name is Davide and I will be

your host as we navigate the seas of freight and commodities.

Fernanda can be with us this week, but we shall still sail on this

week's episode. We will start with our usual roundup of the

latest commodity news, and then we will be joined by Hao pay on

iron ore, Ben Klein for dry freight, and Archie's meat on fuel

oil. So first this week, let's have a look at our macro

news. China's consumer price

rose by 0.7% year on year in February.

This was above the market forecast of 0.3%, probably

due to the robust spending during the Lunar New Year holiday.

US employment rate increased by 0.2% to

3.9% in February, hitting the highest level since

January 2022 and surpassing market expectations of

3.7%. While still we're looking at the US

inflation remains stable at 3.1% in February and core

inflation, which excludes the volatile items such as food and

energy, stood at 3.9% higher than the

consensus at 3.7%.

Now, before we get into the details of our major commodity

markets, let's take a look at the broad market movements for this

week. Freight indices have taken a bit of a breather this

week after that big move on the Capes that we have talked

about in last week's episode, things are a little bit more stable on a week

on week from last Tuesday the 5 March to yesterday Tuesday

the twelveth, the Cape five TC index settled at

$33,000 and 939,

marginally down on last week, while P five TC

index was up 7.97% at

$17,537, supermax ten

tc around flat at $14,363

and handy 70 C

was up 1.6% at

$13,786. Iron

ore continues to slide, dropping from

117 25 to

110 $30. More on that

later in the episode with how on the fuel oil side we have a

divergence between the high sulfur and the

0.5% fuel oil. Singh 380

up 3.2% at

$450.51 while Singo five

went down 0.6% to

$612.07 on

the US HRC index. We have seen it going up

this week $15 and it has reached

$800.

And now let's talk about iron ore with how pay.

How are you doing today? I'm doing well. How are you,

David? I not too bad, not too bad. So let's

dive in with iron ore here. I see that the index Hao dropped

by 7.9% 94% during the report week.

So can you tell us what happened to this market? Is there any

indicator change on the fundamental side? Iron

maintenance stable for most of the time last week but started to

tank over the Friday night. The major fundamental change were

the fast stock up on import inventories in China

versus a very slow protection on pig iron. The

peg iron protection is 7% lower than past

year while iron ore import topped by

8.2% higher for the first two months in China.

And market analysts expected a slight higher number in

March as well. So rugged to say those

information proved an oversupply condition for iron

ore short run. And in addition, the lack of

news policies during China bloody

bureau became another reason as well.

So we heard some of the deal started to expand the main

TNs to avoid virgin loss. So I think

those are all contributors to lead

sharp drop of iron Oregon price.

Hal, as a follow up question, in your

opinion, what will be the signs that we should look for

for the case of like a reversal of the iron ore market?

Because a lot of brokers and clients were talking about what should

be the clear sign to see a market reversal. Well, I think the

first of all, a lot of us has mentioned the flat

structure. The structure of the spread level is going down

to five percentile, which is and extremely low

level. It's both in SGL DCE

market. So when the structure moves flat it naturally means

a lot of buyers trying to shift their demands to

furthermore. But they still believe the market is going to recover

in mid run. I don't know or long run. So I think

flat structure would be recovery sign will

be the first sign of recovery. And the other is we have to

see the demand recovery became faster

than the same period of last year. Say the iron

production is going to be higher, it's going to be faster than the

same time over last March and we need to see

those figures. Moreover, we probably need to see

a slight come off on the shipment from Australia. But

unfortunately I don't think any of the macro factors would become

positive drivers for our normal market. This iron ore

market FIS becoming less sensitive to policies

or news at current period of time. So we will just have to

wait and see how the market unfolds and then if in the near future there's

going to be any dramatic trade. Thank you very much. How your

analysis has been fantastic and precious as always.

Now let's talk about dry freight with Ben Klang.

Hi Ben, how's the weather in Copenhagen? Hi David.

Yes, to be fair, it could change quickly, but right now it's like 50 shades

of gray. Well, I mean also here in London

the weather is not that great, but you've mentioned a war,

the important word change because also getting into

the dry freight. Now, when we spoke the last time,

there were some big moves in the Cape market, but what is

your take on the week that has just passed? It seems a different story, isn't

it? Yes, it's been actually quite

different to the story we talked about the last few weeks. As you said,

last week we outlined a 29% week on week

increase on the Cape five TC index, with this

positivity helping support indexes across the

drive rate market. And if you look at the week on week

indexes going from Tuesday to Tuesday, movement

has been less dramatic. And even a slight drop on the Cape

index altered. The Cape index did peak at

35,780 on Monday, and

the backdrop was that the Cape iron ore shipments slipped

11.7% from the previous strong week

to 26.6 million tons.

Similarly, whole shipments via Cape size vessels

saw a 5.6% dip to

6.8 million tons. However, on the minor

bulk volumes, we saw gain at

7.2% to just above 4 million

tons. And it's also worth mentioning that

altruist in the Red Sea still looks very

precarious. In the Panama Canal, increased rainfall

has actually increased the slots as many hope that this

situation will continue to improve. I see. Okay. And what about

the FFA market instead, as these follow the indexes

in your opinion? Well, despite our reported

flatter week on week index changes, we have had a

choppy week on the FFA, especially on the Capes.

The main market action we've seen was

focused naturally on March April Q two,

Q three, Q four, and the Cal five contracts

on the Cape. The fiscal market concluded the week on a

firm note, buoyant by an increased fixture rate in

both regions and expectations of higher

tonnage demands, which resulted in firmer FFA

prices. On Friday morning, we saw March and

April trade respectively, 35,000

537,250,

with March trading up to a

36,750 high on the Panamax and

the Supras supermaxis, they moved in an opposite direction

with a bit of an increase on the Panamaxes. While the

Supras actually moved south on the Panamaxes,

we now have on the P 40 C March rates at

16,900, having been

15,550 at the time of the last

podcast. Q Three is up to

16,700 from 15,375.

And finally the Cal

25 at 13,450,

moving up across the last week from

13,125. Conversely,

supra March contract is now trading at

14,875, and that's down

from 15,250 at the time of the last

podcast. Q three relatively

flat at around 14,875, and

the Cal 25 at

12,725, which is

marginally down on the week. Okay.

And in terms of volumes, it looks to me that the week

has been quite positive. Another good week. And

again we saw the big star Cape lead the way, with the daily

trading volume surpassing 10,000 lots on

Thursday. On average, Cape and Panamax's

futures traded around

7310 lots and

4950 lots per day

respectively. And also, if you look at open

interest, that increased across all contracts as

traders extended their positions for the further out

contracts. On Monday, Cape TC open interest

stood at

175,039, which is

up 760 week on week. On the

Panamax's 40 C was

177,911.

That's plus 2070 week on

week. And on the Supras, ten Tc at

84,800. And that's plus 1000.

Week on week, Panamax open interest ticked up

along with the rising futures prices,

which is indicating an upward momentum. Ben,

thank you very much for your update, and thank you very much for joining us

this week again. Thank you, David.

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

much for joining us again today. We had some important data releases.

We had us CPI and also the OPEC monthly report.

Can you tell us a little bit what kind of impact they had on the

market? These are important pieces of data that the oil

market participants are always kind of looking out for. That being said, when

it came out yesterday, we were actually quite sideways. I mean, the crude

future was quite sideways, pretty flat. This was because the CPI

data was actually firmer than expected. The OPEC market report

kind of kept a lot of the things fairly the same. I

do have some actual kind of numbers and figures here. So, yeah, in the

OPEC report, the 2025 demand growth forecast, it

was kept at 1.8 million barrels per day. The only thing that

they did change slightly was the non OPEC supply

growth forecast. They brought that down 100,000 barrels per day to 1.2

million barrels per day. So kind of looking at that, I think it's

important to bear in mind when OPEC monthly reports come out

naturally, they're going to be quite bullish because that's

where OPEC want oil to be going. And then with regards to the

CPI, I think it stayed at 0.4%.

The core CPI stayed at 0.4% month on month, which initially

it did unwind some of the Fed rate cut premium.

However, when a closer look was taken at some of the unrounded numbers

and a slower super core month on month inflation, that kind of

reversed the move to leave it pretty sideways on the day. So, yeah, not really

much to report on there. And then actually, since then, talking of data

releases, we had late last night we had the API data release, which

showed a drawback in crude, US crude stockpiles of about 5

million barrels, which has offered some support to the market this morning. I

think crude FIS up about $0.70 on the day. But I think what the

market's got to look out for is later today, the EIA data that comes out.

If that also shows a drawback in US crude stockpiles, then, yeah, then we could

see, certainly see a boost to the market. And if that does confirm the drawback,

then I think that'll be the first drawback in about five or six weeks.

After constant US crude stock builds, data.

Dependency is the keyboard. Yeah. And I have another question for you.

So if the front month HSFO

ew has been really volatile this month, so

maybe you can tell us a little bit what's happening there. Is that a

why? Why is there a rally there? It's very kind of important to realize that

even when we do see some stability and kind of

range bound nature in the crude market, that doesn't necessarily

always relate to the fuel market. So you've mentioned there the front month high

sulfur fuel oil east west. That is up. I mean, it's up

about $15 since the start of the month. So the high sulfur

fuel oil east west, for those listeners who are unfamiliar with the contract, is an

east west differential. So it's basically the difference in price between

the high sulfur Singapore grade, also known as the Singapore

380, against the high sulfur european grade, also known as the

Rotterdam three and a half percent barges and when that differential contract

is in a positive figure, which is at the moment, that means that the

Singapore stuff is trading at a premium to the european stuff. At the minute,

that premium is about $8. But I mean, like I said, at the beginning of

the month, that was actually negative. So the european stuff was more expensive by about

$7, and it's been about $15 change in that

time period, which is, I mean, that contract is notoriously quite volatile.

What's been happening, we've seen a lot of support come from

asian buying, not only in the Singapore closing windows every

day, but also in the late chinese arbitrage session, which happens

around midnight in China, but in London time, it runs from 01:00

p.m. To 03:00 p.m. And this is, well, like I said, it's a lot of

arbitrage trading. And we've seen Shanghai

predominantly buyers of the asian grade during these

windows. So hence offering a lot of support in price to the Singapore 380

and therefore kind of surpassing the barges and

become trading at a premium. I think we've also can be reflected

in the 380 crack, which from the end of last week is up about two

and a half dollars, last trading about -950 in the

market, whereas the european equivalent, the high sulfur european

crack, is up about $0.70 in the same time period from the back end of

last week. And that last traded at minus $11 per barrel in the

market. Don't let a kind of range bound crude market fool you. Fuel is still

definitely chopping about and very volatile as always.

Yeah, well, I mean, it is one of the most volatile markets that we know.

Exactly. Yeah, Archie, thank you very much. I think that we

should do that again next week if you're available, or maybe the week after,

and we can. Keep an eye a week after that. And a week after that,

and then we can keep an eye on these markets and then keep our listeners

up to date with the latest development. So, Archie Smith, thank

you very much. Thank you very much, sir. Thank you. And that is it for

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

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Thanks again for joining us, and we hope to see you again in our

next episode of Freight up. Bye.