Impact of Russian Sanctions on HSFO & Tariffs on Ferrous

Freight up. Hello and

welcome back to Freight up, the Freighting Quantity podcast of Freight Investor Services.

I'm Jess and we'll be navigating our major freight and bulk commodity

markets together. We'll be joined by Ben Klang giving his regular update on

the freight markets, followed by a discussion with Archie Smith and Lewis Jones on the

latest trends shaping the fuel oil market. And finally, how pay

on iron ore and coking coal. Let's first look at the

latest news and index movements of the last two weeks.

The unemployment rate in the euro area reached up to

6.3% in December 2024, rising slightly

from a revised record low of 6.2% in November, in line with

market expectations. Meanwhile, the eurozone economy unexpectedly

stalled in Q4 2024, marking its weakest performance

of the year. This follows a 0.4% expansion in

Q3, which analysts originally forecasted as a modest

0.1% growth for Q4. However, instead of expanding, the

economy flatlined. Adding to the concerns, the bloc's two largest

economies contracted. Germany's GDP shrunk by

0.2%, while France dipped by 0.1%. Italy,

on the other hand, remained stagnant for a second straight quarter. On the

inflation front, price pressures ticked higher. The annual inflation rate in the

euro area rose to 2.5% in January 2025,

up from 2.4% in December, slightly above expectations.

This marks the highest inflation rate since July 2024,

signaling that inflationary pressure remains a challenge. Turning to central

banks, the Federal Reserve held interest rates steady at

4.25% to 4.5% during its January

2025 meeting. As widely expected, after three

consecutive rate cuts in 2024 totaling a full percentage point,

the Fed has now paused its rate cutting cycle as it assesses economic

conditions. Meanwhile in Europe, the European Central bank lowered

its key interest rates by 25 basis points in January

2025, also in line with forecasts. This brought the

deposit facility rate down to

2.75%. The main refinancing rate to

2.9% and marginal lending rate to

3.15%. Back in the US inflation data

showed a slight uptick. The core PCE price index, which

strips out volatile food and energy prices, rose by

0.2% in December 2024, matching

expectations and inching up from the six month low of

0.1% in November.

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

look. So over the past two weeks we've seen a mixed performance across

products, with a general downward trend. In most cases, the

C5TC index has experienced a decline, dropping

from 10,647 on the 21st of January to

6,998 on the 4th of Feb, signaling some

weakening. Similarly, the S10TC and the

HS7TC have followed a downward trajectory

with the 710TC falling from

$6,848 to

$5,615 and the HS7TC

slipped from $7,854 to

$6,679 over the same two week

period. However, the P5TC bucked this trend,

recovering from 6,736 on the 28th of

January to 8,112 on the 4th of

Feb after initial drop from

$7,862. Overall, the market

appeared to be softening with the P5TC standing out as the only product

showing some

Next we have Hao, our analyst from Shanghai. Hi Hao, hi

Jeff, we'll start by asking what the impact of

the two cyclones have had on supply of iron ore

during earlier this week. It's reported that two

strong tropical cyclones warmed into hurricanes

over the Sea of West Australia this week

and so far both cyclones moved out of the coastal areas

which is far from the major shipping lanes as well.

So on late Tuesday and I think at

late afternoon today, both ports recovered

operation which was few hours

ago, but we haven't received official letters but we see

some of the news popping out and however I think Real

Tinto has estimated shipping loss

already, but there's several analysts saying it's

100 million tons of iron ore shipment at

most for the impact during the last three days

and weekends. People are thinking and trying to

speculate a bit on this because Brio Tinto will announce the

details on February 19th about its

annual production and Q1 production

estimates. So that's why people are concerned about it.

And from my perspective the impact should be niche

to the oversupply of iron ore because China still

have 150 million port stocks of iron ore which

was a seasonal high and a two year or three year high. And

in addition we see India demand is entering a

light season from mid February, so I think many

ships will be delayed instead of loss and on

the worst circumstance given 150 million

tons of loss, the overall supply to Asia looks still big

in February and March. In general I think iron ore was in an

oversupply condition in entire Q1 and

I'm thinking the price is not sustainable at the current level

unless some other Extreme weather like heavy rains

and ore cyclones happening in the next few

weeks. So we've talked about US tariffs

with Ben during the freight section. But what are the impacts of the

tariffs imposed on US coal from China? I

think the market is pretty divergent on the understanding of the

coal market. I think first of all we all know u. S announced

a 10 race on all goods exported from China and

then China imposed the 15% of tariffs on coal

products exported from us I think in short run

as we saw since China is one major buyer US

coking coal, a tariff increase means more coking co is

going to squeeze into the Australian or in

other words Pacific prime coal market. So which lead

to an oversupply as well as a drop on the

FOBCC price over the past week and this week.

But I think in the long run if China is importing more

Australian prime ccs instead of the US so which

could provide enough support for the Australian coking

co and for China domestic coking code. The supply from Mongolia

and Russia and other countries were still very sufficient

in 2024 so and which is expected to

remain high growth in 2025. So the decrease of second

year raised CC was less significant. I think the major point

was still on the prime C. I think when the construction

season come in April plus the low price in

Australian Tolkien co. I'm not negative but I'm even

slight positive on the current low price of Apple B Australian

coking co. I think there could be some room for the coking to

uptick. If we look in the longer run, it should have

a better cost efficiency. Very informative as

usual. Thank you very much, Hal. Thank you. Jazz.

Welcome back to the podcast. Ben, you're here to break down the latest

developments in the dry freight market and key pricing trends from the past reporting

period. It's great to have you back. Thank you. Always good to be

here, Jess. All right, let's jump straight in. The big

headlines from this last reporting period has

been the new rounds of tariffs announced by the Trump administration. How has that

played out in the freight market? Yes, big news for shipping

and commodities. As we all saw over the weekend, Trump

signed three executive orders. 25%

tariffs on Canadian and Mexican imports, plus the

10% Levi on Chinese goods. And while

the Canada and Mexico tariff has been delayed, China has already

hit back with its own tariff and even hinted at possible

sanctions on US firms like Google. I mean, that

said, I would say that China's response seems quite

measured. They're basically leaving room for negotiation instead

of escalating this into full blown trade

war. All right, and if these tariffs were to move ahead without

any further delays or last minute deals coming up, what kind of impacts are

we looking at for global trade and more specifically the shipping

industry? Well, yes, it's still early, but some effects are

inevitable. Higher cuts for goods and slower economic

growth are almost guaranteed, especially with the tariffs on China,

given its central role in global trade. And for shipping,

it's a mixed bag. On one hand, reduced demand due to

higher prices could hurt the seaborne cargo volumes. On

the other, if supply chains are forced to adapt, we can see

shifts in trade routes potentially increasing ton mile

demand as goods travel longer distance. So

while overall volume might dip, the distance travel

could offset some of this decline depending on the sector.

Okay, so if we switched gears to the Pacific. Traditionally this

period is a little bit quieter because of Chinese New Year, but has anything

noteworthy surfaced? Yes, as you say. Despite the

seasonal slowdown, there's been some data releases worth

noting. China's manufacturing sector shows sign of

cooling with its searching Purchasing

Managers index coming in at

50.1 and that's the weakest expansion since

last September. That's a step down from

50.5 in December. And you know, while

it's still technically in growth territory, basically over

above 50, the downwards trend is

concerning. Even if the official government PMI

slipped into contraction recently, this suggests that

China's industrial activity and export momentum are under

pressure, which could of course ripple through the dry bulk

market. And again, given the Chinese outsized

influence on dry bulk demand, especially for commodities like

iron ore and coal, its slowdown is likely

to weigh on the freight rates in the near term. And finally,

could you please talk me through the movements in the FFA market over our last

podcast period? Yes, there was modest recovery

in the last week of the Cape market while pricing regaining losses

from the previous week, bringing them roughly in line with the levels

from our last podcast. As of yesterday, the Cape

Feb contract stands at 9100, up

from 8375 on the 21st of

Jane from the reporting period low on the

24th of seven and a half

thousand, while Q2 is at 17,

800, up from 16,275

at the time of our last podcast. The Panamax market

followed a similar pattern with a Q2 contract

initially dropping after our last episode, but

rebounding last week with a

25.3percent increase over the reporting

period and as of yesterday was printing at

11,625 and that's marking the

highest level seen since November. Meanwhile,

Supermaxis remained relatively stable throughout the

period while the Feb contract priced at

7,000 as of yesterday. All right, Ben, thanks for that update.

Always great insights. Thank you, Jess. Always a pleasure.

Joining me now is Lewis Johns, fuel oil trader at Neruda Capital and familiar

face Archie Smith, a regular guest and fuel oil broker at FIS, who will

unsurprisingly be discussing the fuel oil market. They'll be unpacking the impact of

Russian sanctions on high sulfur fuel oil. So, Lewis and Archie, it's great to

have you here. So yeah, I'll just give a quick little synopsis

of what crude's been doing recently before I hand over to Louis

to start up the bit more of an in depth discussion about the high

sulphur complex. Overall, since Trump's been in and this year crude

futures have been under pressure. We've come down from sort of 81, 82

levels in the front month futures down to now today actually

sub 75. Most recently we've had

a delay to tariffs that's added downward pressure on prices after I

guess, successful talks, if that's the correct word, with Mexico.

So those tariffs have been delayed a month. However, I think

looking ahead, there is still a lot of uncertainty around

the crude futures, especially now with China putting 10%

tariffs on US crude imports as sort of a

retaliation. It'll be interesting to see if this develops into

a real sort of trade war environment. But that was just a quick

and brief look at what crude's been doing and now I just want to hand

over to Louis to start talking a little bit about the high self markets coming

out the back end of 2024 and into this year.

Yeah, thank you, Archie. I mean, well, this month's been incredibly busy

so far. Russian sanctions have somewhat provided a perfect

storm to the market. If you look at Singaporean high Sulfur fuel oil Fed

380 fuel cracks are at multi year highs last week trading up to minus

40 cents. You're seeing positive 180 cracks off the back of that. Whilst

we've slightly softened going into pricing. You've got high sulfur

bunker sales continually growing as a percentage of the total alongside

some supply constraints. And it's leading to a perfect storm given you've got

booming demand and at the same time a massive proportion of the fuel

or flying in Singapore is being sanctioned. Yeah, just a quick

one on that. Why do you think it's been more sort of visibly aggressive on

the Asian side of things? Obviously you mentioned the

380 more so than kind of barges and stuff, you know, we

Know, both Asia and Europe rely heavily on Russian

barrels because of their sort of higher sulfur content. You know, it's a lot of

sour crude coming out of Russia. Do you think it's been more aggressive

in the Singaporean complex recently because Europe has sort of

already adjusted to a lack of Russian flows post

Ukraine war? Yeah, exactly. That's sort of the nail on the head.

I mean, at the end of January that 380East west traded up to highs of

sort of $35 a ton. Yeah, that was crazy. Yeah, exactly.

I mean, for one, the European market's been incredibly strong over the past six

months. I think prompt barge cracks have been in single digits

since mid September. The European market's also adjusted to a lack

of Russian barrels and material post Ukraine and weaned itself off of that, while

Singapore is to a degree very dependent. So that's

why you're seeing the impact mainly on 380 structure in east west and obviously

380 cracks. I think another thing worth mentioning is obviously going a little bit back

to what I said at the start with Trump. He's been pretty adamant on the

fact that us are going to pump, pump, pump and there's going to be a

lot of sort of domestic output there. From what I understand, a lot of the

US crudes are a lot sweeter. So I think, you know, if

Europe looks to sort of. Well, as it already has, the US

I think has filled quite a big supply gap that Russia left and it's a

lot of sweeter crudes, lower sulfur content coming over to Europe, which obviously has more

of an impact on like 0.5 supply and less sort of high

sulfur able to be refined from those sort of barrels. No, definitely. And I

mean yesterday we saw, whilst the US Gulf coast is a relatively

small market in terms of hedging for end users, I mean

there's maximum implications for tariffs on that market. And yesterday we saw the high sulfur

up whip saw trading into minus 75 cents a barrel, training

out to minus 180 at the end of close, which is, you know, over a

dollar a barrel move. It's. Yeah, and there's a lot of macro uncertainty.

Right. So what do you think about the high fives as well, Singh? High fives?

Euro high fives. Obviously, you know, looking at a lot of our clients do have

scrubber fitted vessels or are looking at getting scrubber fitted vessels. So you know what's

happening over there? At the time of recording, we're seeing the March seeing high five

around $83 a tonne. Whereas if you look further out to Q4

25, we're valuing that around $107 a tonne. That just

indicates how strong demand is for high sulphur for the first half of the

year. Looking at last year's Singh bunker sales, they were for one the

highest in record and up 6% from Cal

23. High sulfur itself, sales were up 21% year on

year. And the VLSFO they were somewhat

softer 3% learning Cal 23. So Chi software is growing

as a marine fuel and the share of sales is clearly

constructive. In December of last year we're looking

at high selfish share was 43%. That's a post IMO

high. And more broadly, the Q4 of 24 share was

41%. That's up 3% from Q4

2023. Consistent demand for, as you've said, scrub scrubber fitted

vessels and the contango shape of the Singh high five curve, it

just, yeah, it's very constructive for bunker sales in Q1, for

high silver specifically for sure. And for me now to

address the listeners, if there are some of our trading clients

here or guys who are looking to trade with us, the high five markets are

very good tool for hedging sort of scrubber village vessels and managing the scrubber

economy. So and what I want to say is they are super liquid markets. They're

liquid products with a lot of market participants in them. And so you

know, the high fives. If anyone's got any questions on high fives, you know, please

feel free to reach out. We can quote those and trade those. Absolutely no issues.

Is there anything else that you wanted to mention, Lewis, since you're the star guest?

Yeah. On high selfie. It covers a lot of what's been driving the

market is worth maybe mentioning the potential sewers reopening,

the implications on 0.5 deal SFO bunkering demand.

As of present, we're seeing an incredibly strong European

0.5 complex. Fed March euro rallied for all

of last month from lows of sort of $4 or $5 last trading $14.

Whereas. Whereas pricing in a physical market, the cash versus

MOC print was $28 yesterday. I mean it's very, very strong.

You think that's been a main sort of another big factor that's been dragging that,

that was dragging that Fed March euro spread up as well.

Was the differential cash moc for sure. Yeah. Where it's pricing

now, but I think it's just a tight market. It's also helped in

the Feb east, west weakening we saw last month, it came off from,

you know, $42 mid January to right on the lows of

$33 a tonne a couple of days ago. Whilst people are

optimistic that the Red Sea is going to resume, I think we really need to

see, you know, the Joint War Committee of Lloyd's categorize the

area as lower risk. It's currently in high risk areas still. So I think people

are going to be sat on, still willing to go around the Cape of Good

Hope until we see a material change in circumstances. However short

term, it looks like we might be turning a corner 100%. And I think, I

think one thing I'm just going to end it on as well is on the

topic of canals. I think it'd be interesting to see how it plays with.

Obviously, Trump has made statements about how he wants to

retake the Panama Canal. Obviously find it hard to argue

that's had any impact on the fuel market, but if something like that did go

ahead, I think it'd be interesting to see how market participants sort of

interpret that and what, what happens there. Yeah, exactly. Cool.

Thanks, Louis. All right, thanks both of you guys. That was an

informative segment. It's always good to have guests on. So thank you for joining

us, Louis. And as usual, thank you, Archie. Thank you, Jess. And

that's it for this podcast. Make sure to subscribe by clicking the subscribe button

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