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.
Iron ore continued its drop after last week, and the
Speaker:$116 to $118 levels look
Speaker:far. Has anything fundamentally changed into these markets?
Speaker:Hao Pay gives us his analysis and tell us what we could expect in
Speaker:the near future in the freight market. It looks like that the story is
Speaker:different from the last few weeks. Ben Klang from our Copenhagen
Speaker:office gives us the main takeaway of a rather choppy week in
Speaker:FFAs. And last but not least, Archie's meet looks at the
Speaker:latest development in the oil market and what some key data
Speaker:releases mean for it. All this and more in our episode of
Speaker:Freight up. Freight up.
Speaker:Hello and welcome back to Freight up. My name is Davide and I will be
Speaker:your host as we navigate the seas of freight and commodities.
Speaker:Fernanda can be with us this week, but we shall still sail on this
Speaker:week's episode. We will start with our usual roundup of the
Speaker:latest commodity news, and then we will be joined by Hao pay on
Speaker:iron ore, Ben Klein for dry freight, and Archie's meat on fuel
Speaker:oil. So first this week, let's have a look at our macro
Speaker:news. China's consumer price
Speaker:rose by 0.7% year on year in February.
Speaker:This was above the market forecast of 0.3%, probably
Speaker:due to the robust spending during the Lunar New Year holiday.
Speaker:US employment rate increased by 0.2% to
Speaker:3.9% in February, hitting the highest level since
Speaker:January 2022 and surpassing market expectations of
Speaker:3.7%. While still we're looking at the US
Speaker:inflation remains stable at 3.1% in February and core
Speaker:inflation, which excludes the volatile items such as food and
Speaker:energy, stood at 3.9% higher than the
Speaker:consensus at 3.7%.
Speaker:Now, before we get into the details of our major commodity
Speaker:markets, let's take a look at the broad market movements for this
Speaker:week. Freight indices have taken a bit of a breather this
Speaker:week after that big move on the Capes that we have talked
Speaker:about in last week's episode, things are a little bit more stable on a week
Speaker:on week from last Tuesday the 5 March to yesterday Tuesday
Speaker:the twelveth, the Cape five TC index settled at
Speaker:$33,000 and 939,
Speaker:marginally down on last week, while P five TC
Speaker:index was up 7.97% at
Speaker:$17,537, supermax ten
Speaker:tc around flat at $14,363
Speaker:and handy 70 C
Speaker:was up 1.6% at
Speaker:$13,786. Iron
Speaker:ore continues to slide, dropping from
Speaker:117 25 to
Speaker:110 $30. More on that
Speaker:later in the episode with how on the fuel oil side we have a
Speaker:divergence between the high sulfur and the
Speaker:0.5% fuel oil. Singh 380
Speaker:up 3.2% at
Speaker:$450.51 while Singo five
Speaker:went down 0.6% to
Speaker:$612.07 on
Speaker:the US HRC index. We have seen it going up
Speaker:this week $15 and it has reached
Speaker:$800.
Speaker:And now let's talk about iron ore with how pay.
Speaker:How are you doing today? I'm doing well. How are you,
Speaker:David? I not too bad, not too bad. So let's
Speaker:dive in with iron ore here. I see that the index Hao dropped
Speaker:by 7.9% 94% during the report week.
Speaker:So can you tell us what happened to this market? Is there any
Speaker:indicator change on the fundamental side? Iron
Speaker:maintenance stable for most of the time last week but started to
Speaker:tank over the Friday night. The major fundamental change were
Speaker:the fast stock up on import inventories in China
Speaker:versus a very slow protection on pig iron. The
Speaker:peg iron protection is 7% lower than past
Speaker:year while iron ore import topped by
Speaker:8.2% higher for the first two months in China.
Speaker:And market analysts expected a slight higher number in
Speaker:March as well. So rugged to say those
Speaker:information proved an oversupply condition for iron
Speaker:ore short run. And in addition, the lack of
Speaker:news policies during China bloody
Speaker:bureau became another reason as well.
Speaker:So we heard some of the deal started to expand the main
Speaker:TNs to avoid virgin loss. So I think
Speaker:those are all contributors to lead
Speaker:sharp drop of iron Oregon price.
Speaker:Hal, as a follow up question, in your
Speaker:opinion, what will be the signs that we should look for
Speaker:for the case of like a reversal of the iron ore market?
Speaker:Because a lot of brokers and clients were talking about what should
Speaker:be the clear sign to see a market reversal. Well, I think the
Speaker:first of all, a lot of us has mentioned the flat
Speaker:structure. The structure of the spread level is going down
Speaker:to five percentile, which is and extremely low
Speaker:level. It's both in SGL DCE
Speaker:market. So when the structure moves flat it naturally means
Speaker:a lot of buyers trying to shift their demands to
Speaker:furthermore. But they still believe the market is going to recover
Speaker:in mid run. I don't know or long run. So I think
Speaker:flat structure would be recovery sign will
Speaker:be the first sign of recovery. And the other is we have to
Speaker:see the demand recovery became faster
Speaker:than the same period of last year. Say the iron
Speaker:production is going to be higher, it's going to be faster than the
Speaker:same time over last March and we need to see
Speaker:those figures. Moreover, we probably need to see
Speaker:a slight come off on the shipment from Australia. But
Speaker:unfortunately I don't think any of the macro factors would become
Speaker:positive drivers for our normal market. This iron ore
Speaker:market FIS becoming less sensitive to policies
Speaker:or news at current period of time. So we will just have to
Speaker:wait and see how the market unfolds and then if in the near future there's
Speaker:going to be any dramatic trade. Thank you very much. How your
Speaker:analysis has been fantastic and precious as always.
Speaker:Now let's talk about dry freight with Ben Klang.
Speaker:Hi Ben, how's the weather in Copenhagen? Hi David.
Speaker:Yes, to be fair, it could change quickly, but right now it's like 50 shades
Speaker:of gray. Well, I mean also here in London
Speaker:the weather is not that great, but you've mentioned a war,
Speaker:the important word change because also getting into
Speaker:the dry freight. Now, when we spoke the last time,
Speaker:there were some big moves in the Cape market, but what is
Speaker:your take on the week that has just passed? It seems a different story, isn't
Speaker:it? Yes, it's been actually quite
Speaker:different to the story we talked about the last few weeks. As you said,
Speaker:last week we outlined a 29% week on week
Speaker:increase on the Cape five TC index, with this
Speaker:positivity helping support indexes across the
Speaker:drive rate market. And if you look at the week on week
Speaker:indexes going from Tuesday to Tuesday, movement
Speaker:has been less dramatic. And even a slight drop on the Cape
Speaker:index altered. The Cape index did peak at
Speaker:35,780 on Monday, and
Speaker:the backdrop was that the Cape iron ore shipments slipped
Speaker:11.7% from the previous strong week
Speaker:to 26.6 million tons.
Speaker:Similarly, whole shipments via Cape size vessels
Speaker:saw a 5.6% dip to
Speaker:6.8 million tons. However, on the minor
Speaker:bulk volumes, we saw gain at
Speaker:7.2% to just above 4 million
Speaker:tons. And it's also worth mentioning that
Speaker:altruist in the Red Sea still looks very
Speaker:precarious. In the Panama Canal, increased rainfall
Speaker:has actually increased the slots as many hope that this
Speaker:situation will continue to improve. I see. Okay. And what about
Speaker:the FFA market instead, as these follow the indexes
Speaker:in your opinion? Well, despite our reported
Speaker:flatter week on week index changes, we have had a
Speaker:choppy week on the FFA, especially on the Capes.
Speaker:The main market action we've seen was
Speaker:focused naturally on March April Q two,
Speaker:Q three, Q four, and the Cal five contracts
Speaker:on the Cape. The fiscal market concluded the week on a
Speaker:firm note, buoyant by an increased fixture rate in
Speaker:both regions and expectations of higher
Speaker:tonnage demands, which resulted in firmer FFA
Speaker:prices. On Friday morning, we saw March and
Speaker:April trade respectively, 35,000
Speaker:537,250,
Speaker:with March trading up to a
Speaker:36,750 high on the Panamax and
Speaker:the Supras supermaxis, they moved in an opposite direction
Speaker:with a bit of an increase on the Panamaxes. While the
Speaker:Supras actually moved south on the Panamaxes,
Speaker:we now have on the P 40 C March rates at
Speaker:16,900, having been
Speaker:15,550 at the time of the last
Speaker:podcast. Q Three is up to
Speaker:16,700 from 15,375.
Speaker:And finally the Cal
Speaker:25 at 13,450,
Speaker:moving up across the last week from
Speaker:13,125. Conversely,
Speaker:supra March contract is now trading at
Speaker:14,875, and that's down
Speaker:from 15,250 at the time of the last
Speaker:podcast. Q three relatively
Speaker:flat at around 14,875, and
Speaker:the Cal 25 at
Speaker:12,725, which is
Speaker:marginally down on the week. Okay.
Speaker:And in terms of volumes, it looks to me that the week
Speaker:has been quite positive. Another good week. And
Speaker:again we saw the big star Cape lead the way, with the daily
Speaker:trading volume surpassing 10,000 lots on
Speaker:Thursday. On average, Cape and Panamax's
Speaker:futures traded around
Speaker:7310 lots and
Speaker:4950 lots per day
Speaker:respectively. And also, if you look at open
Speaker:interest, that increased across all contracts as
Speaker:traders extended their positions for the further out
Speaker:contracts. On Monday, Cape TC open interest
Speaker:stood at
Speaker:175,039, which is
Speaker:up 760 week on week. On the
Speaker:Panamax's 40 C was
Speaker:177,911.
Speaker:That's plus 2070 week on
Speaker:week. And on the Supras, ten Tc at
Speaker:84,800. And that's plus 1000.
Speaker:Week on week, Panamax open interest ticked up
Speaker:along with the rising futures prices,
Speaker:which is indicating an upward momentum. Ben,
Speaker:thank you very much for your update, and thank you very much for joining us
Speaker:this week again. Thank you, David.
Speaker:And now let's talk fuel oil with Archie Smith. Archie, thank you very
Speaker:much for joining us again today. We had some important data releases.
Speaker:We had us CPI and also the OPEC monthly report.
Speaker:Can you tell us a little bit what kind of impact they had on the
Speaker:market? These are important pieces of data that the oil
Speaker:market participants are always kind of looking out for. That being said, when
Speaker:it came out yesterday, we were actually quite sideways. I mean, the crude
Speaker:future was quite sideways, pretty flat. This was because the CPI
Speaker:data was actually firmer than expected. The OPEC market report
Speaker:kind of kept a lot of the things fairly the same. I
Speaker:do have some actual kind of numbers and figures here. So, yeah, in the
Speaker:OPEC report, the 2025 demand growth forecast, it
Speaker:was kept at 1.8 million barrels per day. The only thing that
Speaker:they did change slightly was the non OPEC supply
Speaker:growth forecast. They brought that down 100,000 barrels per day to 1.2
Speaker:million barrels per day. So kind of looking at that, I think it's
Speaker:important to bear in mind when OPEC monthly reports come out
Speaker:naturally, they're going to be quite bullish because that's
Speaker:where OPEC want oil to be going. And then with regards to the
Speaker:CPI, I think it stayed at 0.4%.
Speaker:The core CPI stayed at 0.4% month on month, which initially
Speaker:it did unwind some of the Fed rate cut premium.
Speaker:However, when a closer look was taken at some of the unrounded numbers
Speaker:and a slower super core month on month inflation, that kind of
Speaker:reversed the move to leave it pretty sideways on the day. So, yeah, not really
Speaker:much to report on there. And then actually, since then, talking of data
Speaker:releases, we had late last night we had the API data release, which
Speaker:showed a drawback in crude, US crude stockpiles of about 5
Speaker:million barrels, which has offered some support to the market this morning. I
Speaker:think crude FIS up about $0.70 on the day. But I think what the
Speaker:market's got to look out for is later today, the EIA data that comes out.
Speaker:If that also shows a drawback in US crude stockpiles, then, yeah, then we could
Speaker:see, certainly see a boost to the market. And if that does confirm the drawback,
Speaker:then I think that'll be the first drawback in about five or six weeks.
Speaker:After constant US crude stock builds, data.
Speaker:Dependency is the keyboard. Yeah. And I have another question for you.
Speaker:So if the front month HSFO
Speaker:ew has been really volatile this month, so
Speaker:maybe you can tell us a little bit what's happening there. Is that a
Speaker:why? Why is there a rally there? It's very kind of important to realize that
Speaker:even when we do see some stability and kind of
Speaker:range bound nature in the crude market, that doesn't necessarily
Speaker:always relate to the fuel market. So you've mentioned there the front month high
Speaker:sulfur fuel oil east west. That is up. I mean, it's up
Speaker:about $15 since the start of the month. So the high sulfur
Speaker:fuel oil east west, for those listeners who are unfamiliar with the contract, is an
Speaker:east west differential. So it's basically the difference in price between
Speaker:the high sulfur Singapore grade, also known as the Singapore
Speaker:380, against the high sulfur european grade, also known as the
Speaker:Rotterdam three and a half percent barges and when that differential contract
Speaker:is in a positive figure, which is at the moment, that means that the
Speaker:Singapore stuff is trading at a premium to the european stuff. At the minute,
Speaker:that premium is about $8. But I mean, like I said, at the beginning of
Speaker:the month, that was actually negative. So the european stuff was more expensive by about
Speaker:$7, and it's been about $15 change in that
Speaker:time period, which is, I mean, that contract is notoriously quite volatile.
Speaker:What's been happening, we've seen a lot of support come from
Speaker:asian buying, not only in the Singapore closing windows every
Speaker:day, but also in the late chinese arbitrage session, which happens
Speaker:around midnight in China, but in London time, it runs from 01:00
Speaker:p.m. To 03:00 p.m. And this is, well, like I said, it's a lot of
Speaker:arbitrage trading. And we've seen Shanghai
Speaker:predominantly buyers of the asian grade during these
Speaker:windows. So hence offering a lot of support in price to the Singapore 380
Speaker:and therefore kind of surpassing the barges and
Speaker:become trading at a premium. I think we've also can be reflected
Speaker:in the 380 crack, which from the end of last week is up about two
Speaker:and a half dollars, last trading about -950 in the
Speaker:market, whereas the european equivalent, the high sulfur european
Speaker:crack, is up about $0.70 in the same time period from the back end of
Speaker:last week. And that last traded at minus $11 per barrel in the
Speaker:market. Don't let a kind of range bound crude market fool you. Fuel is still
Speaker:definitely chopping about and very volatile as always.
Speaker:Yeah, well, I mean, it is one of the most volatile markets that we know.
Speaker:Exactly. Yeah, Archie, thank you very much. I think that we
Speaker:should do that again next week if you're available, or maybe the week after,
Speaker:and we can. Keep an eye a week after that. And a week after that,
Speaker:and then we can keep an eye on these markets and then keep our listeners
Speaker:up to date with the latest development. So, Archie Smith, thank
Speaker:you very much. Thank you very much, sir. Thank you. And that is it for
Speaker:this week. Make sure to subscribe by clicking on the subscribe button
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Speaker:commodity analysis from us at freight investor services.
Speaker:Thanks again for joining us, and we hope to see you again in our
Speaker:next episode of Freight up. Bye.