Insights on Freight Rates, Iron Ore, and Oil Market Fluctuations

[00:00:00] Hello and welcome back to Freight Up.

[00:00:02] My name is Jess and together with Davide, we'll be your hosts as we navigate our major

[00:00:05] freight and bulk commodity markets.

[00:00:07] In this episode we take a look at the latest movements in dry freight with Ben Klang,

[00:00:11] Hao Pei will tell us more about the effects of the new Chinese stimulus package on iron

[00:00:14] ore and RG Smith will give us his take on the oil markets.

[00:00:18] Hello hello, I hope that you've been doing great since the last time that you've

[00:00:24] heard from us but as usual let's look at the latest news and index movements

[00:00:28] since our last episode.

[00:00:31] The unemployment rate in the UK rose to 4.3% from January to March, slightly up from

[00:00:36] 4.2% in the three months to December 2023 and this was in line with market expectations.

[00:00:42] Inflation has dropped less than 2.3% in April, hitting the lowest since July 2021.

[00:00:48] Looking at the US, core inflation rate, which exclude the volatile items such as

[00:00:52] food and energy, rose by 0.3% month on month in April, slowing from a 0.4% increase in

[00:01:00] March and February.

[00:01:01] The annual level instead eased to a three-year low of 3.6%, down from 3.8% in the prior

[00:01:08] month.

[00:01:09] The inflation rate in the US increased instead 0.3% month on month in April 2024 and

[00:01:14] slowed to 3.4% year on year from 3.5% in March.

[00:01:19] Electrical prices have increased dramatically, hitting the highest level in almost nine

[00:01:22] months following the riots in New Caledonia.

[00:01:25] This metal, critical to produce batteries for electric vehicles, rose by almost 7%

[00:01:30] on the LME last Friday to $21,150 a tonne.

[00:01:35] Lastly, this week's copper rally transformed in a short squeeze on the US contract operated

[00:01:40] by the CME Group.

[00:01:41] The CME cash copper hit a record high of $11,414 a metric tonne and the premium

[00:01:47] over the LME copper contract jumped to more than $1,000 a tonne.

[00:01:52] But what have been the broad market movements in the last two weeks?

[00:01:55] Let's take a quick look together.

[00:01:57] The rates have been steadily declining across the drive rate indices.

[00:02:02] After the big move up in the capes of two weeks ago, the index has now sunk down

[00:02:07] to just above $22,000 a day, down nearly $7,000 in two weeks.

[00:02:11] Smaller ships have generally followed the same trend downwards, with the P5TC

[00:02:16] index now at 16,401, ST1TC at 15,205 and then the size 7TC at 12,390 all down on two weeks ago.

[00:02:27] Iron Ore has recovered a bit with the index rates now above recent levels up

[00:02:31] $2 from two weeks ago and $5 from one week.

[00:02:35] They closed yesterday at $120 and $70 with a positive looking June and government stimulus

[00:02:40] helping push up prices.

[00:02:42] On the oil front, having almost touched $90 a barrel at the end of April, Brent is now

[00:02:47] hovering above the $81 mark.

[00:02:50] This has also impacted fuel oil prices with index levels down $40 a tonne on the Singapore

[00:02:56] high sulfur fuel and down $10 a tonne on the 0.5% grade.

[00:03:02] And now let's chat about drive rate with Ben Khang.

[00:03:05] Can you fill me in on the general trend you've been seeing across the freight market?

[00:03:09] The FFA market has actually not managed to maintain the upwards trajectory that we were

[00:03:13] observing during our last broadcast.

[00:03:15] In this last week, there appears to be a general trend across all our main markets

[00:03:21] of rates slipping early in the week before flattening out towards the end of the

[00:03:25] week and it appears that the majority consistently lower index have weighted on the curve.

[00:03:32] Then talk me through how the physical may have affected the FFA market in this last week.

[00:03:37] In normal order, let's begin with the capes.

[00:03:39] It appears that the physical demand has contributed to the decline as iron ore shipments

[00:03:45] continue to slip for the second week to 28 million tonnes, down 2.2%.

[00:03:50] However, we saw coal shipments by the Cape size vessels.

[00:03:54] We saw like an 1.8% weekly increase to 7.4 million tonnes.

[00:04:01] That was thanks to a healthy shipment from Australia and a strong week for South Africa,

[00:04:06] whose weekly volume jumped 37% to reach 1.4 million tonnes.

[00:04:11] And you can see that this is represented in the Cape FFA,

[00:04:15] steady decline before kicking back up marginally by the end of the week.

[00:04:20] Monday last week we saw May sold down to 25,000 and June to 28,000

[00:04:26] and by Thursday continued pressure saw May and June at lows of 23,000 and 25,000.

[00:04:35] By Friday there was some recuperation of the week's losses with the rates rebounding off the week's low.

[00:04:44] On the Panama axis in the Pacific and Atlantic basins came under pressure.

[00:04:49] This is no surprise that the prompt Panama FFA followed a similar pattern to the capes.

[00:04:55] With the June rates encountered some downward pressure at the beginning of the week,

[00:05:00] dropping from Monday's open of 17,300 to the week's low on Thursday's open at

[00:05:08] 15,525 before driving back up towards the end of the week to close on Friday at 16,075 dollars.

[00:05:18] And on the supermax index followed a similar pattern to the larger vessels

[00:05:23] with the rates dragging down towards the week but at a lesser extent.

[00:05:28] This was due to the impact of limited new inquiries in the US Gulf or Med but with a

[00:05:35] well-supplied tonnage market. And on the FFA we saw a steeper drop than that of the index.

[00:05:43] At the beginning of the week with June opening on Monday at 16,375 and by Thursday June has

[00:05:50] fallen to 15,175. Flattening out on these levels with yesterday's open not having moved much at

[00:05:59] 15,450. Thank you Ben for that update and I look forward to hearing where we end up on

[00:06:04] our next market update from the dry freight market. Next we have Hao Pei, senior analyst

[00:06:10] from our Shanghai office. How would the new house stimulus in China impact the iron ore

[00:06:16] market? During the last week China cut down payment of some tier 1 and tier 2 cities as low as 15%

[00:06:24] which was the lowest in history. In fact the last cut happened in last August by the day of

[00:06:30] announcement the house agents were almost completely booked it's crowded everywhere.

[00:06:36] I tried some calls in person last week accordingly mortgage rates down 15 bps but

[00:06:43] in detail it would depend on the specific areas cities and commercial banks. And in addition

[00:06:48] China allowed local government to buy back some of the unfinished houses with funding problems

[00:06:54] into affordable houses. So in general a picture of de-stocking and buying on house market

[00:07:00] happened in China so which boosts equities and failures and to be honest compared with

[00:07:05] equities failures was pretty humble on the growth. However it is also worth noting that

[00:07:11] all those big headlines normally should take weekly level trading and after the short term

[00:07:17] money taking gains there are always some risks left there. And moreover the revamping of our

[00:07:24] houses and affordable houses building only sold less than 8% of money issuance so far. We have

[00:07:30] a long way to go so as the Paris market. Very interesting to see one of the detriments of

[00:07:38] demand affect it so obviously. Could you please also talk me through how the fundamentals look

[00:07:44] like? The short run the trade on metals became crowded and about to go silver and copper think

[00:07:51] and team. So I'm worried about when those positions when the short run traders taking

[00:07:57] gains from those products which probably also impact ferrous as well. It actually happened

[00:08:03] this Monday for a while. We actually mentioned about this point of view last week as well

[00:08:08] because the positions are taking off from majority the short run money and in fact I'm

[00:08:14] not convinced that recent buyers were all long run investors and fundamentally iron ore high

[00:08:19] arrivals in Q2 maintained the problem. And iron ore inventories at China ports reached seasonal

[00:08:25] high at 148 million tons while daily consumptions were still 1% lower than the same period over

[00:08:33] last year. But the steel orders were in general robust but are these all priced in as people

[00:08:40] see this data as early as late April I thought. And iron ore is overvalued in short and I think

[00:08:46] the one thing that is worth noting is that the MB65 and PLoT62 spread the strategy we have

[00:08:54] been pitching from $12 in March to $16.5 in May for the first round and now we have chances when

[00:09:03] we see a $15.5 right now. And I think the problem is we still having a rather low steel margin

[00:09:11] and slight we're not super like straightforward bullish on the outright side so it's also

[00:09:18] worth waiting for the 65 and 62 spread to see if they get corrected furthermore.

[00:09:25] Or when the price level of 62 started to correct then maybe it's a perfect timing

[00:09:30] and level to enter the trading of this spread. I think we're targeting 17 somewhere in June or

[00:09:36] July for the spread. Thank you so much Hao, some good thoughts there on when to join the

[00:09:41] market. Thank you very much and I'll see you in a couple of weeks. And now let's talk about

[00:09:46] fuel oil with the People's Broker Archie Smith. Archie thank you very much for joining us again,

[00:09:51] a pleasure as always. Thank you for having me. Is it safe to say that like the Crude has been

[00:09:55] like pretty range bound this month so I wanted to know, I wanted to ask you like what are

[00:09:59] the factors that are providing the floors and the ceilings? Sure yeah I mean you're definitely

[00:10:04] correct there it has been pretty range bound this month. Back end of last week we were

[00:10:09] trading towards the higher end of that range around the corner at $84 per barrel level just

[00:10:14] above that. That was off the back of a bit of a drawback in some US crude stockpiles as well as

[00:10:20] some positive economic data out of China and US that kind of bolstered the price a bit. Again

[00:10:27] it was nothing to really move markets but like I said it supported the price to the upper end

[00:10:33] of that range. I think it's very much kind of market has turned away from looking at the

[00:10:39] conflict in the Middle East very much now looking presumably at macro factors and fundamentals.

[00:10:46] I think the only thing that is worth mentioning is the death of the Iranian

[00:10:51] leader in a helicopter crash that actually did kind of spark a very small amount of support

[00:10:56] I think very immediately when the market opened after that news there was uncertainty

[00:11:00] surrounding you know had it been a strike from Israel or etc etc but I think it seems

[00:11:07] pretty clear that it was a helicopter crash in bad weather so again that that sort of fire

[00:11:12] sizzled out. So that was kind of back end of last week and then we're hitting ceilings of

[00:11:17] weak demand outlook, risk sentiment has taken a bit of a hit I think people are anticipating

[00:11:23] stickier US interest rates in the sense that they're not expecting a cut anytime soon so

[00:11:29] that's seen us come off and today late last night we had the API US oil data came out and

[00:11:35] that actually showed a build API build of 2.5 million barrels of crude in the US which also

[00:11:40] put some downward pressure on prices and now we're kind of hovering around the low end of

[00:11:43] that range 81 50 81 82 level. On the HSFO market I mean like it seems that there's a rally

[00:11:53] happening at the moment maybe I don't know if you can tell us something more about that.

[00:11:57] Very much so yeah I mean the east west has really driven up the barges crack has really

[00:12:02] driven up and the front 380 spreads have really driven up. Looking at the front 380 spread in

[00:12:07] particularly the front contract which is the June July spread I think it's up like five bucks on

[00:12:11] the month trading around seven level at the beginning of May trading last when I left my

[00:12:15] desk at about 12 and a quarter it's a mix of things I think market players don't want to

[00:12:18] be short the June when we eventually come into that month so I think they're buying

[00:12:22] the spread so therefore netting out their June position shorting July. Another thing is

[00:12:28] Middle Eastern power generation season you know as the heat gets pretty intense over there

[00:12:32] their high sulfur fuel oil demand spikes quite a lot for your cooling systems air conditioning

[00:12:37] etc etc that's certainly another driver I think that's why we've seen the east west rally so

[00:12:43] much it's up about 15 bucks from the start of the month trading around 32 bucks what that means

[00:12:49] is that they're seeing 380 high sulfur fuel oil is trading 32 bucks higher than its

[00:12:54] European equivalent we have seen still some support in the European market the barge crack

[00:12:59] is up like a dollar 50 on the week trading around the minus nine level this is a mix

[00:13:04] of things I'd say it's general crack behavior as crude comes off cracks get stronger I think

[00:13:10] there's part of that to play but I also think you could argue that some market participants

[00:13:15] are buying into it ahead of the OPEC meeting in June in anticipation of output being held

[00:13:21] steady as the output cuts being held steady or extended another OPEC meeting another one like

[00:13:28] there is going to be another interesting one and yeah pretty sure that like there's going

[00:13:32] to be more news they're gonna feed into all markets more in general I think you've

[00:13:37] made a good point now I think market will definitely be looking ahead to OPEC meeting

[00:13:41] you know considering it's pretty directionless at the minute for crude specifically I think

[00:13:46] yeah people are looking ahead to that see what's the next move we will be sure to be

[00:13:50] reporting about that in the next episodes okay for sure actually thank you very much

[00:13:55] always a pleasure so I think that we can continue our conversation in two weeks time

[00:13:59] and hopefully like our listeners won't be bored by us two weeks too long

[00:14:04] cheers thank you very much bye cheers and that's it for this week make sure to subscribe by

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[00:14:19] commodity analysis from fis thanks again for joining us and see you in two weeks time on

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