Iron Ore drop & OPEC Meeting Impact on Oil Prices

Hello and welcome back to freight up. My name is Jess and together with

Davide we'll be your hosts as we navigate our major freight and bulk commodity

markets. In this episode, Halpe will look at the reasons behind the

recent drop in iron ore. Archie Smith gives us his take on the oil market

and an old friend of the podcast, Rob Belcher, will give us his take on

the steel and scrap market. Hello. Hello everybody. I hope that

you've been doing okay since you last heard from us. As

usual, lets have a first look at the latest news and the index

movements since our last episode two weeks ago.

Lets start with some personal news. We are happy to announce that FIS

has acquired GR eight chartering helias in Athens,

Greece. GR eight Chartering was founded in June

2023 as a broker for vessels of dry cargo

of all sizes and provides market intelligence and insights,

pricing and consulting on negotiations, operations and maritime

regulations. Its brokerage team in Athens will complement and

enhance the existing FIS offering of derivatives in freight and

commodities. The acquisition will bring GR eight Chartering's

expertise in physical shipping into the FIS group and increase its

presence in Greece, one of shipping market's key geographies.

Now let's look at some inflation figures. In the UK, the rate

went down to 2.3% in April, hitting the lowest since July

2021 in comparison to the 3.2 if

in March. In Japan, the annual inflation also decreased to

2.5% in April from 2.7% in

March. The preliminary estimates for the euro area show an

increase for the first time in five months to 2.6% in

May from 2.4% in each of the previous two months.

In China, the Caixin general manufacturing PMI

rose to 51.7 points in May 2024 from

51.4 in April, surpassing the estimates of

51.5. In the US, the ISM manufacturing

PMI index unexpectedly edged lower to 48.7

points in May 2024 from 49.2 in April,

below the forecast of 49.6 points.

And now let's take a quick look at the broad market movements

of the last two weeks. Index wise, we have seen a much

quieter market on freight. Gone are the days of the 30% to

50% moves on the index, and the easy ebb and flow of

summer trading is already here. The four dry freight basket

rates have all been within a one 2000 range.

The c five DC closing yesterday at

23,545, up 1500

from two weeks ago. B five tc went down to

$15,012 from sixteen thousand four hundred and

one s ten tc

13,920 down from

15,200 and the handicyes index printed

yesterday just shy of 13,000. Iron ore has seen

a sharp drop over the past two weeks, down from $120

a tonne to $106.80 yesterday. High port

inventories and lingering concerns about the sustainability of the

chinese economic stimulus has clearly waited on the market, but stay

tuned because we have more about that later on. Finally, let's have

a look at the fuel oils. They've been dragged down by declining crude

prices. They've generally dropped as well. In fact, single five

printed yesterday at $560 with these high

sulfur equivalent of $494 down around

$15 on the prior week.

Next we have Hao Pei, senior analyst from our Shanghai office what

caused the sharp drop of iron ore over the past two weeks? I

think first of all the drop fell into our

expectation. We mentioned in mid May the ferrous

possibly see sharp correction when the crowded trades on

cobra and silver stopped. The positions of silver

in major exchange evaporated significantly during the past two

weeks. So that's one external factor on the

fundamental side. As we mentioned in the last few

reports in iron ore see higher supplies and

inventories in May and June. However, the consumption side

the daily picked iron production in China fell slightly. The

similar condition happened in Southeast Asia as well and

oversupply was very obvious on iron ore market

and virtual steel margin recovered from

55 yuan per ton to 78 yuan potential

last week. However, this number was still at

seasonal low so that was the other contributor on the

fundamental side. So both pointed to the fact that

iron ore is bearish. Ok then,

so having said that, how do you see iron ore prices in June and

July? I have been frequently asked for this

question during the past week since some of the traders

potentially are thinking of shifting positions to longer terms.

That's why we see the structures is becoming flat

on iron on market. So in short run I think the sharp drop

depend on the macro environment change. For example, if gold and

silver correct to q four lasted to

the level similar to Q four last year, which means probably

25% to 30% of let's just make an assumption

from the highest level of the year. So the rest of metals should fall as

well. But normally that won't happen. But on fundamental

side I think iron ore should see lower place in the rest

of 2024 in the next two months. So the current level

is not the lowest. So since oversupply caused

a consistent problem through May and June and however

fairly less consumption of steels constructions

used to launch deals are expected lower in June as well

as the flat steels are getting lower on the export

side because the rainy seasons in Asia and high tariffs

on the export side make China exported steel less

competitive in european market. And I think the low margin

is also one problem as well. So I think all the fundamental

indicators were resisting iron ore emit run from

a big rebound. So from other words, I think the iron

ore price is still on the mutual bearish

side in June or early July, at least

from my point of view. Thank you very much, Hal. That was very good

insight. And I'll see you in two weeks. Thank you. Bye.

And now let's talk about fuel oil with Archie

Smith. Archie, thank you very much for joining us again.

Always a pleasure to welcome you in the booth. How are you doing today? Pleasure

to be on, mate. Thank you very much. So I have a question for you

as always. So we've seen a very range bone for like

crude, but now it seems that June has brought all this, all the excitement. So

can you tell us more about the result of the OPEC meeting and what this

has done to the prices? Sure. So, yeah, as you said, may,

we were very much stuck between sort of like an 81 and 85

range, pretty directionless. And then OPEC had the meeting on

Sunday. And basically the conclusion of that meeting

was that the OPEC plus members were going to continue their

ongoing output cuts until through Q three of this year. And

then for Q four, they're going to start trickling more supply back

into the market. So the main OPec producers are going to start trickling

crude back into the market in Q four, and the rest of the members kind

of, the smaller producers will keep their cuts into 2025. But obviously,

you know, the main bulk of crude oil comes out of those main

guys, you know, your Saudi Arabia, et cetera, et cetera, usual

suspects. And this is massively bearish. I don't think any analysts expected

these producers to start bringing more output into the market

for a little while yet. So for it to be so soon in Q four,

markets taken a very bearish sentiment Monday morning trading straight after

the meeting. It was a little bit sideways, but certainly

with a bearish sentiment. And then the markets kind of trickled down to the

$80 per barrel mark in the morning. And then as soon as we hit

that mark, I think there was a lot of technical stop out levels there. And

I certainly think thats a big psychological level as well, the 80 mark. So as

soon as we kind of hit that, we just dropped all throughout the

afternoon. We went down to 76 75, I think is

one of the lowest prices we've had. So it's come off about almost

5% this week. Like I said, it's off the back of the OPEC meeting

with people anticipating more supply. I think it also jumps

onto the existing environment of poor

demand outlook and weak economic data coming out of the

US and China. It's added onto that and it's all snowballed. And we're finally

seeing some movements in the crude. We're really coming off.

Certainly think we could see it come even weaker.

And on the I five s instead, they've been moving around quite a

lot. So, like, I don't know if you can tell us a little bit what's

happening there. This, I think has a link to the,

to the crude movements as well. So the high fives, for those who are maybe

new to the podcast or don't know what the high five spread is, it's the

differential in price between the high sulfur fuel oil and the low sulfur fuel

oil. Low sulfur fuel oil traditionally is always more expensive because it's more refined,

it's cleaner, less sulfur, and obviously the high sulfur cheaper. We are seeing

this spread now narrow a lot. So this Singh, if we're looking at the Singh

high five, the cal 25 Singh high five is kind of hovering around

the barrel mark, and in the front it's in like the high eighties. So like

an $80 difference between your low sulfur and high sulfur is really low, certainly the

lowest we've seen it in quite a while. And this is just coming from strength

in the, in the high sulfur fuel, more so than weakness in the low

sulfur fuel kind of links to the crude, because often when crude and high sulfur

often have a inverse relationship. So with crude coming off, high

sulfur becomes more expensive. And

another thing is the kind of ongoing lack

of physical high sulfur supply. A lot of the OPEC countries

and, you know, Saudi and Russia, they are, their crude is known to be high

sulfur content very is called heavy crude, which is where the kind of high sulfur

fuel oil comes from. So with less of that in circulation at the moment, from

all the output cuts, it's just kind of harder to get hold of. And another

thing I'd mention is power generation season in the Middle east. As they

get into their summer, the demand for the high sulfur stuff really, really spikes there.

And I think those are a few of the things as to why we're seeing

strength in the high sulfur, thus narrower high fives. I

see. And then we hope that the summer will finally arrive also here in London,

because, like, I'm really looking forward to just like, drop my umbrella

somewhere hidden in my apartment and don't take it like, until, I

don't know if you. Saw, but there was a, I think BBC News said

that apparently it was the hottest, maybe the warmest

may in this country on record. Where have they got that from?

Anyway, Archie, always a pleasure. Thank you very much, as always, for

joining us today. And as always, we can maybe do it again in two

weeks time and then we can give our listeners also, like, an update on the

weather, for sure. Yeah, we'll turn it to work podcasts as well. Cheers. Bye

bye. Thank you very much. And now let's talk

about steel and scrap with head of steel, Rob Belcher. Rob,

thank you very much for joining us today. How are you doing? Very well, thank

you. Thank you for having me. So I would like to start with the first

question. So I was wondering if you can tell us what's going on on the

european hot rolled coil market this year. Yeah, certainly can. So

let's rewind to the start of the year. So in Jan, we saw a brief

spike in prices as some buyers restocked their inventories. The

Argus european hot rolled index kicked off 2024

at 692 spot €25 per tonne.

Exworks that climbed to 750 54 spot

€5 per tonne. By the end of Jan, however, this upward trend

was short lived, much like my New Year's resolutions. Since

then, we've seen a steady decline in demand,

challenging macroeconomic environment characterized mainly

by high interest rates. It's significantly impacted sort of real

consumption. Construction activity, especially in Germany, has nearly ground to

a halt once the driving force of the european economy. Germany is now

struggling a bit like England versus Italy in that euro cup final

four years ago. And no, I'm still not bit. By April

22, the index has dropped to its lowest point this year at

623 spot €75 per tonne and

has shown little improvement since. As of 3 June

is holding steady at 635 spot €5 per

tonne. I mean, there was a slight restocking surge in April, but prices

remain subdued. High import levels and continued production by

larger EU mills aimed at maintaining their free carbon emission

allowances so have kept prices from rising. The futures contract

volumes on the CME are teetering just under the 400 kt mark year

to date. This is a slight decline on year on year growth since the launch

of the contract, but the second half this year seems like it's poised for volume

growth, with the european economic outlook becoming marginally

clearer. Thanks, Rob. And we spoke about Europe

and what about our friends across the Atlantic in the US. Yeah, so the

us hot roll call prices have really declined over the last month now

about $750 per tonne. This marks

a 9.6% drop in May. Service

centers avoid spot buying, relying on contracts due to the

ample spot availability you see in domestic mill lead times are

still steady around three to five weeks. I mean, demand is weak in sectors like

construction and truck trailer manufacturing. We've subdued buying

expected throughout the summer, but there is a plot twist. There's speculation

that domestic prices may stabilise soon as interest

rates in offshore orders remain low due to long

lead times. New call's recent price dropped to

70%. Tonne has really thrown a sort of

curveball, with some predicting low prices through the summer to attract sort of

2025 contract commitments, with large buyers holding

out significant discounts. But no major deals have

emerged yet. As the HRC supply increases, mills are expected to sort

of maintain wider spreads to value added products

compared to historic levels. And we're looking at just shy of two and a half

million tonnes trade on the CME futures contract year to date, with the options

contract having a strong first half of the year coming in at just under 375

five kt. Thanks Rob. And

finally, what's the latest on the turkish scrap and reba? So

turkish scrap and rebar, I mean, since dropping below the sort of

$400 a tonne CFR price in Feb,

scrap prices have been floating around the sort of 300 7380

range, occasionally nudged by restocking and rebar demand.

Mid May saw some offers from the us and baltic regions around the

382 mark, despite rising collection costs in the Baltics.

In April, the CFR Turkey price averaged at 3.85,

but east of 3.82.5. In early May, rebar producers,

especially in the is Kendra region, ramped up their scrap

inventories due to stronger domestic demand. Turkish rebar

export prices have been stuck in the sort of 500

$8585 per tonne fob range. With

mills struggling to raise prices after losing Israel as a major export

market, they're now giving Europe and Latin America the eye. Though demand

there really remains limited. So mills aim to keep

scrap rebar conversion costs at about $200

per tonne, but really, really close to breakeven. So think sort of

tightrope walking without a net. In the near term, turkish scrap prices

should average around the $390 per tonne

mark with some support from the construction sector. However, rebuy

export opportunities maybe remain limited as ever the

LME scrap futures contract volumes remain strong, with just shy of

3 million tonnes traded year to date. The volume growth looks to continue

throughout the second half of the year, and more and more physical customers entering

the market. This market is one roaring kitty Reddit post

off becoming the next commodity futures powerhouse. Let's see how it will go in

the next few months then. Thank you very much, Rob, for joining us.

Cheers. Thank you. And that's it for this week.

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