Commodity roundup: iron ore drops, Capes take a break
Hello and welcome back to Freight Up, the number 1 commodities and freight markets podcast from FIS.
I'm your host, Davide, and in this episode of Freight Up, we're covering the fuel oil arbitrage, and the latest on the Capes.
We start with a roundup of the latest macroeconomic news, discussing topics such as China's consumer price rise and US employment rate.
We then hear from our team of 'Freight Uppers' on the topics of iron ore, dry freight, and fuel oil.
Hao Pei provides insights into the significant drop in the iron ore market and potential signs of reversal.
Ben Klang shares the shifts in the dry freight market, including the impact on the FFA market.
Archie Smith discusses the impact of data releases, including the OPEC monthly report, on the fuel oil market and explains the volatility in the front month high sulphur fuel oil east-west differential.
What are you waiting for?
Click play on the episode and listen in as we break down the complex world of freight and commodities.
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Timestamps
00:00 US inflation stable, freight market movements summarised.
03:51 Iron maintenance stable, but dropped on Friday.
08:36 Capes experienced choppy FFA market, with increases.
12:56 OPEC lowers production; CPI stays steady. API data shows crude stockpile decrease.
15:19 Asian buyers support prices, European prices higher.
00:00:00
Iron ore continued its drop after last week, and the
00:00:03
$116 to $118 levels look
00:00:07
far. Has anything fundamentally changed into these markets?
00:00:10
Hao Pay gives us his analysis and tell us what we could expect in
00:00:14
the near future in the freight market. It looks like that the story is
00:00:18
different from the last few weeks. Ben Klang from our Copenhagen
00:00:21
office gives us the main takeaway of a rather choppy week in
00:00:25
FFAs. And last but not least, Archie's meet looks at the
00:00:29
latest development in the oil market and what some key data
00:00:33
releases mean for it. All this and more in our episode of
00:00:36
Freight up. Freight up.
00:00:41
Hello and welcome back to Freight up. My name is Davide and I will be
00:00:44
your host as we navigate the seas of freight and commodities.
00:00:48
Fernanda can be with us this week, but we shall still sail on this
00:00:52
week's episode. We will start with our usual roundup of the
00:00:55
latest commodity news, and then we will be joined by Hao pay on
00:00:59
iron ore, Ben Klein for dry freight, and Archie's meat on fuel
00:01:03
oil. So first this week, let's have a look at our macro
00:01:06
news. China's consumer price
00:01:10
rose by 0.7% year on year in February.
00:01:13
This was above the market forecast of 0.3%, probably
00:01:17
due to the robust spending during the Lunar New Year holiday.
00:01:21
US employment rate increased by 0.2% to
00:01:24
3.9% in February, hitting the highest level since
00:01:28
January 2022 and surpassing market expectations of
00:01:32
3.7%. While still we're looking at the US
00:01:35
inflation remains stable at 3.1% in February and core
00:01:39
inflation, which excludes the volatile items such as food and
00:01:43
energy, stood at 3.9% higher than the
00:01:46
consensus at 3.7%.
00:01:51
Now, before we get into the details of our major commodity
00:01:54
markets, let's take a look at the broad market movements for this
00:01:58
week. Freight indices have taken a bit of a breather this
00:02:02
week after that big move on the Capes that we have talked
00:02:06
about in last week's episode, things are a little bit more stable on a week
00:02:09
on week from last Tuesday the 5 March to yesterday Tuesday
00:02:13
the twelveth, the Cape five TC index settled at
00:02:17
$33 and 939,
00:02:20
marginally down on last week, while P five TC
00:02:24
index was up 7.97% at
00:02:27
$17, supermax ten
00:02:31
tc around flat at $14
00:02:35
and handy 70 C
00:02:38
was up 1.6% at
00:02:40
$13. Iron
00:02:44
ore continues to slide, dropping from
00:02:46
117 25 to
00:02:50
110 $30. More on that
00:02:54
later in the episode with how on the fuel oil side we have a
00:02:57
divergence between the high sulfur and the
00:02:59
0.5% fuel oil. Singh 380
00:03:03
up 3.2% at
00:03:05
$450.51 while Singo five
00:03:09
went down 0.6% to
00:03:11
$612.07 on
00:03:15
the US HRC index. We have seen it going up
00:03:19
this week $15 and it has reached
00:03:22
$800.
00:03:25
And now let's talk about iron ore with how pay.
00:03:29
How are you doing today? I'm doing well. How are you,
00:03:33
David? I not too bad, not too bad. So let's
00:03:37
dive in with iron ore here. I see that the index Hao dropped
00:03:41
by 7.9% 94% during the report week.
00:03:44
So can you tell us what happened to this market? Is there any
00:03:48
indicator change on the fundamental side? Iron
00:03:52
maintenance stable for most of the time last week but started to
00:03:56
tank over the Friday night. The major fundamental change were
00:03:59
the fast stock up on import inventories in China
00:04:03
versus a very slow protection on pig iron. The
00:04:07
peg iron protection is 7% lower than past
00:04:10
year while iron ore import topped by
00:04:13
8.2% higher for the first two months in China.
00:04:17
And market analysts expected a slight higher number in
00:04:21
March as well. So rugged to say those
00:04:24
information proved an oversupply condition for iron
00:04:28
ore short run. And in addition, the lack of
00:04:31
news policies during China bloody
00:04:35
bureau became another reason as well.
00:04:38
So we heard some of the deal started to expand the main
00:04:42
TNs to avoid virgin loss. So I think
00:04:45
those are all contributors to lead
00:04:49
sharp drop of iron Oregon price.
00:04:52
Hal, as a follow up question, in your
00:04:55
opinion, what will be the signs that we should look for
00:04:59
for the case of like a reversal of the iron ore market?
00:05:03
Because a lot of brokers and clients were talking about what should
00:05:07
be the clear sign to see a market reversal. Well, I think the
00:05:11
first of all, a lot of us has mentioned the flat
00:05:14
structure. The structure of the spread level is going down
00:05:18
to five percentile, which is and extremely low
00:05:21
level. It's both in SGL DCE
00:05:25
market. So when the structure moves flat it naturally means
00:05:29
a lot of buyers trying to shift their demands to
00:05:32
furthermore. But they still believe the market is going to recover
00:05:36
in mid run. I don't know or long run. So I think
00:05:39
flat structure would be recovery sign will
00:05:43
be the first sign of recovery. And the other is we have to
00:05:46
see the demand recovery became faster
00:05:50
than the same period of last year. Say the iron
00:05:54
production is going to be higher, it's going to be faster than the
00:05:57
same time over last March and we need to see
00:06:01
those figures. Moreover, we probably need to see
00:06:05
a slight come off on the shipment from Australia. But
00:06:09
unfortunately I don't think any of the macro factors would become
00:06:13
positive drivers for our normal market. This iron ore
00:06:16
market FIS becoming less sensitive to policies
00:06:20
or news at current period of time. So we will just have to
00:06:24
wait and see how the market unfolds and then if in the near future there's
00:06:28
going to be any dramatic trade. Thank you very much. How your
00:06:31
analysis has been fantastic and precious as always.
00:06:36
Now let's talk about dry freight with Ben Klang.
00:06:39
Hi Ben, how's the weather in Copenhagen? Hi David.
00:06:43
Yes, to be fair, it could change quickly, but right now it's like 50 shades
00:06:47
of gray. Well, I mean also here in London
00:06:51
the weather is not that great, but you've mentioned a war,
00:06:54
the important word change because also getting into
00:06:58
the dry freight. Now, when we spoke the last time,
00:07:02
there were some big moves in the Cape market, but what is
00:07:06
your take on the week that has just passed? It seems a different story, isn't
00:07:09
it? Yes, it's been actually quite
00:07:13
different to the story we talked about the last few weeks. As you said,
00:07:17
last week we outlined a 29% week on week
00:07:20
increase on the Cape five TC index, with this
00:07:24
positivity helping support indexes across the
00:07:28
drive rate market. And if you look at the week on week
00:07:31
indexes going from Tuesday to Tuesday, movement
00:07:35
has been less dramatic. And even a slight drop on the Cape
00:07:39
index altered. The Cape index did peak at
00:07:42
35 on Monday, and
00:07:46
the backdrop was that the Cape iron ore shipments slipped
00:07:50
11.7% from the previous strong week
00:07:53
to 26.6 million tons.
00:07:57
Similarly, whole shipments via Cape size vessels
00:08:00
saw a 5.6% dip to
00:08:03
6.8 million tons. However, on the minor
00:08:07
bulk volumes, we saw gain at
00:08:10
7.2% to just above 4 million
00:08:13
tons. And it's also worth mentioning that
00:08:17
altruist in the Red Sea still looks very
00:08:20
precarious. In the Panama Canal, increased rainfall
00:08:24
has actually increased the slots as many hope that this
00:08:28
situation will continue to improve. I see. Okay. And what about
00:08:31
the FFA market instead, as these follow the indexes
00:08:35
in your opinion? Well, despite our reported
00:08:39
flatter week on week index changes, we have had a
00:08:43
choppy week on the FFA, especially on the Capes.
00:08:46
The main market action we've seen was
00:08:50
focused naturally on March April Q two,
00:08:54
Q three, Q four, and the Cal five contracts
00:08:58
on the Cape. The fiscal market concluded the week on a
00:09:01
firm note, buoyant by an increased fixture rate in
00:09:05
both regions and expectations of higher
00:09:09
tonnage demands, which resulted in firmer FFA
00:09:12
prices. On Friday morning, we saw March and
00:09:16
April trade respectively, 35
00:09:18
537,
00:09:24
with March trading up to a
00:09:26
36 high on the Panamax and
00:09:30
the Supras supermaxis, they moved in an opposite direction
00:09:34
with a bit of an increase on the Panamaxes. While the
00:09:37
Supras actually moved south on the Panamaxes,
00:09:41
we now have on the P 40 C March rates at
00:09:45
16, having been
00:09:49
15 at the time of the last
00:09:52
podcast. Q Three is up to
00:09:54
16 from 15.
00:09:58
And finally the Cal
00:10:01
25 at 13,
00:10:05
moving up across the last week from
00:10:07
13. Conversely,
00:10:11
supra March contract is now trading at
00:10:14
14, and that's down
00:10:18
from 15 at the time of the last
00:10:21
podcast. Q three relatively
00:10:25
flat at around 14, and
00:10:28
the Cal 25 at
00:10:30
12, which is
00:10:34
marginally down on the week. Okay.
00:10:37
And in terms of volumes, it looks to me that the week
00:10:41
has been quite positive. Another good week. And
00:10:45
again we saw the big star Cape lead the way, with the daily
00:10:49
trading volume surpassing 10 lots on
00:10:52
Thursday. On average, Cape and Panamax's
00:10:55
futures traded around
00:10:58
7310 lots and
00:11:00
4950 lots per day
00:11:03
respectively. And also, if you look at open
00:11:07
interest, that increased across all contracts as
00:11:11
traders extended their positions for the further out
00:11:14
contracts. On Monday, Cape TC open interest
00:11:18
stood at
00:11:19
175, which is
00:11:23
up 760 week on week. On the
00:11:26
Panamax's 40 C was
00:11:29
177.
00:11:33
That's plus 2070 week on
00:11:37
week. And on the Supras, ten Tc at
00:11:40
84. And that's plus 1000.
00:11:44
Week on week, Panamax open interest ticked up
00:11:48
along with the rising futures prices,
00:11:51
which is indicating an upward momentum. Ben,
00:11:55
thank you very much for your update, and thank you very much for joining us
00:11:59
this week again. Thank you, David.
00:12:03
And now let's talk fuel oil with Archie Smith. Archie, thank you very
00:12:07
much for joining us again today. We had some important data releases.
00:12:11
We had us CPI and also the OPEC monthly report.
00:12:14
Can you tell us a little bit what kind of impact they had on the
00:12:17
market? These are important pieces of data that the oil
00:12:21
market participants are always kind of looking out for. That being said, when
00:12:25
it came out yesterday, we were actually quite sideways. I mean, the crude
00:12:29
future was quite sideways, pretty flat. This was because the CPI
00:12:32
data was actually firmer than expected. The OPEC market report
00:12:36
kind of kept a lot of the things fairly the same. I
00:12:40
do have some actual kind of numbers and figures here. So, yeah, in the
00:12:44
OPEC report, the 2025 demand growth forecast, it
00:12:48
was kept at 1.8 million barrels per day. The only thing that
00:12:51
they did change slightly was the non OPEC supply
00:12:55
growth forecast. They brought that down 100 barrels per day to 1.2
00:12:59
million barrels per day. So kind of looking at that, I think it's
00:13:02
important to bear in mind when OPEC monthly reports come out
00:13:06
naturally, they're going to be quite bullish because that's
00:13:10
where OPEC want oil to be going. And then with regards to the
00:13:13
CPI, I think it stayed at 0.4%.
00:13:17
The core CPI stayed at 0.4% month on month, which initially
00:13:21
it did unwind some of the Fed rate cut premium.
00:13:24
However, when a closer look was taken at some of the unrounded numbers
00:13:28
and a slower super core month on month inflation, that kind of
00:13:32
reversed the move to leave it pretty sideways on the day. So, yeah, not really
00:13:35
much to report on there. And then actually, since then, talking of data
00:13:39
releases, we had late last night we had the API data release, which
00:13:43
showed a drawback in crude, US crude stockpiles of about 5
00:13:46
million barrels, which has offered some support to the market this morning. I
00:13:50
think crude FIS up about $0.70 on the day. But I think what the
00:13:54
market's got to look out for is later today, the EIA data that comes out.
00:13:57
If that also shows a drawback in US crude stockpiles, then, yeah, then we could
00:14:01
see, certainly see a boost to the market. And if that does confirm the drawback,
00:14:05
then I think that'll be the first drawback in about five or six weeks.
00:14:08
After constant US crude stock builds, data.
00:14:12
Dependency is the keyboard. Yeah. And I have another question for you.
00:14:15
So if the front month HSFO
00:14:19
ew has been really volatile this month, so
00:14:22
maybe you can tell us a little bit what's happening there. Is that a
00:14:26
why? Why is there a rally there? It's very kind of important to realize that
00:14:30
even when we do see some stability and kind of
00:14:34
range bound nature in the crude market, that doesn't necessarily
00:14:38
always relate to the fuel market. So you've mentioned there the front month high
00:14:41
sulfur fuel oil east west. That is up. I mean, it's up
00:14:45
about $15 since the start of the month. So the high sulfur
00:14:49
fuel oil east west, for those listeners who are unfamiliar with the contract, is an
00:14:52
east west differential. So it's basically the difference in price between
00:14:56
the high sulfur Singapore grade, also known as the Singapore
00:15:00
380, against the high sulfur european grade, also known as the
00:15:03
Rotterdam three and a half percent barges and when that differential contract
00:15:07
is in a positive figure, which is at the moment, that means that the
00:15:11
Singapore stuff is trading at a premium to the european stuff. At the minute,
00:15:15
that premium is about $8. But I mean, like I said, at the beginning of
00:15:18
the month, that was actually negative. So the european stuff was more expensive by about
00:15:21
$7, and it's been about $15 change in that
00:15:25
time period, which is, I mean, that contract is notoriously quite volatile.
00:15:29
What's been happening, we've seen a lot of support come from
00:15:33
asian buying, not only in the Singapore closing windows every
00:15:36
day, but also in the late chinese arbitrage session, which happens
00:15:40
around midnight in China, but in London time, it runs from 01:00
00:15:44
p.m. To 03:00 p.m. And this is, well, like I said, it's a lot of
00:15:47
arbitrage trading. And we've seen Shanghai
00:15:50
predominantly buyers of the asian grade during these
00:15:54
windows. So hence offering a lot of support in price to the Singapore 380
00:15:57
and therefore kind of surpassing the barges and
00:16:01
become trading at a premium. I think we've also can be reflected
00:16:04
in the 380 crack, which from the end of last week is up about two
00:16:08
and a half dollars, last trading about -950 in the
00:16:12
market, whereas the european equivalent, the high sulfur european
00:16:15
crack, is up about $0.70 in the same time period from the back end of
00:16:19
last week. And that last traded at minus $11 per barrel in the
00:16:23
market. Don't let a kind of range bound crude market fool you. Fuel is still
00:16:27
definitely chopping about and very volatile as always.
00:16:30
Yeah, well, I mean, it is one of the most volatile markets that we know.
00:16:34
Exactly. Yeah, Archie, thank you very much. I think that we
00:16:38
should do that again next week if you're available, or maybe the week after,
00:16:41
and we can. Keep an eye a week after that. And a week after that,
00:16:45
and then we can keep an eye on these markets and then keep our listeners
00:16:49
up to date with the latest development. So, Archie Smith, thank
00:16:52
you very much. Thank you very much, sir. Thank you. And that is it for
00:16:56
this week. Make sure to subscribe by clicking on the subscribe button
00:17:00
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00:17:04
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00:17:10
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00:17:14
Thanks again for joining us, and we hope to see you again in our
00:17:18
next episode of Freight up. Bye.