Welcome to another episode of Freight Up, your go-to source for the latest news and insights in the freight and bulk commodity markets.
I'm Jess, and today, along with Davide, we'll bring you up to date on recent market movements.
Our expert line-up this week includes Hao Pei, who'll shed light on the reasons behind the sharp drop in iron ore prices, Archie Smith with his analysis on the oil market post-OPEC meeting, and our old friend Rob Belcher, who'll provide insights into the steel and scrap market.
Additionally, we'll cover the latest acquisition news with FIS acquiring GR8 Chartering in Athens, and update you on global inflation figures and broad market movements.
Listen in for an episode packed with essential updates and expert opinions to keep you informed and ahead in the freight and commodity landscape!
Useful links:
Timestamped summary
00:00 UK inflation down, Japan down, Euro up.
03:46 Silver and iron ore markets see drops.
09:08 Narrowing spread between high and low sulphur.
12:12 German construction slows, prices remain subdued.
14:37 Turkish scrap and rebar market trends summarised.
16:18 Subscribe for the latest freight and commodity analysis.
00:00:04
Hello and welcome back to freight up. My name is Jess and together with
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Davide we'll be your hosts as we navigate our major freight and bulk commodity
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markets. In this episode, Halpe will look at the reasons behind the
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recent drop in iron ore. Archie Smith gives us his take on the oil market
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and an old friend of the podcast, Rob Belcher, will give us his take on
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the steel and scrap market. Hello. Hello everybody. I hope that
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you've been doing okay since you last heard from us. As
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usual, lets have a first look at the latest news and the index
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movements since our last episode two weeks ago.
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Lets start with some personal news. We are happy to announce that FIS
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has acquired GR eight chartering helias in Athens,
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Greece. GR eight Chartering was founded in June
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2023 as a broker for vessels of dry cargo
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of all sizes and provides market intelligence and insights,
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pricing and consulting on negotiations, operations and maritime
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regulations. Its brokerage team in Athens will complement and
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enhance the existing FIS offering of derivatives in freight and
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commodities. The acquisition will bring GR eight Chartering's
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expertise in physical shipping into the FIS group and increase its
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presence in Greece, one of shipping market's key geographies.
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Now let's look at some inflation figures. In the UK, the rate
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went down to 2.3% in April, hitting the lowest since July
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2021 in comparison to the 3.2 if
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in March. In Japan, the annual inflation also decreased to
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2.5% in April from 2.7% in
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March. The preliminary estimates for the euro area show an
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increase for the first time in five months to 2.6% in
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May from 2.4% in each of the previous two months.
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In China, the Caixin general manufacturing PMI
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rose to 51.7 points in May 2024 from
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51.4 in April, surpassing the estimates of
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51.5. In the US, the ISM manufacturing
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PMI index unexpectedly edged lower to 48.7
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points in May 2024 from 49.2 in April,
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below the forecast of 49.6 points.
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And now let's take a quick look at the broad market movements
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of the last two weeks. Index wise, we have seen a much
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quieter market on freight. Gone are the days of the 30% to
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50% moves on the index, and the easy ebb and flow of
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summer trading is already here. The four dry freight basket
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rates have all been within a one 2000 range.
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The c five DC closing yesterday at
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23, up 1500
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from two weeks ago. B five tc went down to
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$15 from sixteen thousand four hundred and
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one s ten tc
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13 down from
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15 and the handicyes index printed
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yesterday just shy of 13. Iron ore has seen
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a sharp drop over the past two weeks, down from $120
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a tonne to $106.80 yesterday. High port
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inventories and lingering concerns about the sustainability of the
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chinese economic stimulus has clearly waited on the market, but stay
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tuned because we have more about that later on. Finally, let's have
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a look at the fuel oils. They've been dragged down by declining crude
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prices. They've generally dropped as well. In fact, single five
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printed yesterday at $560 with these high
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sulfur equivalent of $494 down around
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$15 on the prior week.
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Next we have Hao Pei, senior analyst from our Shanghai office what
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caused the sharp drop of iron ore over the past two weeks? I
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think first of all the drop fell into our
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expectation. We mentioned in mid May the ferrous
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possibly see sharp correction when the crowded trades on
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cobra and silver stopped. The positions of silver
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in major exchange evaporated significantly during the past two
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weeks. So that's one external factor on the
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fundamental side. As we mentioned in the last few
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reports in iron ore see higher supplies and
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inventories in May and June. However, the consumption side
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the daily picked iron production in China fell slightly. The
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similar condition happened in Southeast Asia as well and
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oversupply was very obvious on iron ore market
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and virtual steel margin recovered from
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55 yuan per ton to 78 yuan potential
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last week. However, this number was still at
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seasonal low so that was the other contributor on the
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fundamental side. So both pointed to the fact that
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iron ore is bearish. Ok then,
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so having said that, how do you see iron ore prices in June and
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July? I have been frequently asked for this
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question during the past week since some of the traders
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potentially are thinking of shifting positions to longer terms.
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That's why we see the structures is becoming flat
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on iron on market. So in short run I think the sharp drop
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depend on the macro environment change. For example, if gold and
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silver correct to q four lasted to
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the level similar to Q four last year, which means probably
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25% to 30% of let's just make an assumption
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from the highest level of the year. So the rest of metals should fall as
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well. But normally that won't happen. But on fundamental
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side I think iron ore should see lower place in the rest
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of 2024 in the next two months. So the current level
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is not the lowest. So since oversupply caused
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a consistent problem through May and June and however
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fairly less consumption of steels constructions
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used to launch deals are expected lower in June as well
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as the flat steels are getting lower on the export
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side because the rainy seasons in Asia and high tariffs
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on the export side make China exported steel less
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competitive in european market. And I think the low margin
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is also one problem as well. So I think all the fundamental
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indicators were resisting iron ore emit run from
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a big rebound. So from other words, I think the iron
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ore price is still on the mutual bearish
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side in June or early July, at least
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from my point of view. Thank you very much, Hal. That was very good
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insight. And I'll see you in two weeks. Thank you. Bye.
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And now let's talk about fuel oil with Archie
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Smith. Archie, thank you very much for joining us again.
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Always a pleasure to welcome you in the booth. How are you doing today? Pleasure
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to be on, mate. Thank you very much. So I have a question for you
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as always. So we've seen a very range bone for like
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crude, but now it seems that June has brought all this, all the excitement. So
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can you tell us more about the result of the OPEC meeting and what this
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has done to the prices? Sure. So, yeah, as you said, may,
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we were very much stuck between sort of like an 81 and 85
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range, pretty directionless. And then OPEC had the meeting on
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Sunday. And basically the conclusion of that meeting
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was that the OPEC plus members were going to continue their
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ongoing output cuts until through Q three of this year. And
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then for Q four, they're going to start trickling more supply back
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into the market. So the main OPec producers are going to start trickling
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crude back into the market in Q four, and the rest of the members kind
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of, the smaller producers will keep their cuts into 2025. But obviously,
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you know, the main bulk of crude oil comes out of those main
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guys, you know, your Saudi Arabia, et cetera, et cetera, usual
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suspects. And this is massively bearish. I don't think any analysts expected
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these producers to start bringing more output into the market
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for a little while yet. So for it to be so soon in Q four,
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markets taken a very bearish sentiment Monday morning trading straight after
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the meeting. It was a little bit sideways, but certainly
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with a bearish sentiment. And then the markets kind of trickled down to the
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$80 per barrel mark in the morning. And then as soon as we hit
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that mark, I think there was a lot of technical stop out levels there. And
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I certainly think thats a big psychological level as well, the 80 mark. So as
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soon as we kind of hit that, we just dropped all throughout the
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afternoon. We went down to 76 75, I think is
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one of the lowest prices we've had. So it's come off about almost
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5% this week. Like I said, it's off the back of the OPEC meeting
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with people anticipating more supply. I think it also jumps
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onto the existing environment of poor
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demand outlook and weak economic data coming out of the
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US and China. It's added onto that and it's all snowballed. And we're finally
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seeing some movements in the crude. We're really coming off.
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Certainly think we could see it come even weaker.
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And on the I five s instead, they've been moving around quite a
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lot. So, like, I don't know if you can tell us a little bit what's
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happening there. This, I think has a link to the,
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to the crude movements as well. So the high fives, for those who are maybe
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new to the podcast or don't know what the high five spread is, it's the
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differential in price between the high sulfur fuel oil and the low sulfur fuel
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oil. Low sulfur fuel oil traditionally is always more expensive because it's more refined,
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it's cleaner, less sulfur, and obviously the high sulfur cheaper. We are seeing
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this spread now narrow a lot. So this Singh, if we're looking at the Singh
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high five, the cal 25 Singh high five is kind of hovering around
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the barrel mark, and in the front it's in like the high eighties. So like
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an $80 difference between your low sulfur and high sulfur is really low, certainly the
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lowest we've seen it in quite a while. And this is just coming from strength
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in the, in the high sulfur fuel, more so than weakness in the low
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sulfur fuel kind of links to the crude, because often when crude and high sulfur
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often have a inverse relationship. So with crude coming off, high
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sulfur becomes more expensive. And
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another thing is the kind of ongoing lack
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of physical high sulfur supply. A lot of the OPEC countries
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and, you know, Saudi and Russia, they are, their crude is known to be high
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sulfur content very is called heavy crude, which is where the kind of high sulfur
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fuel oil comes from. So with less of that in circulation at the moment, from
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all the output cuts, it's just kind of harder to get hold of. And another
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thing I'd mention is power generation season in the Middle east. As they
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get into their summer, the demand for the high sulfur stuff really, really spikes there.
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And I think those are a few of the things as to why we're seeing
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strength in the high sulfur, thus narrower high fives. I
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see. And then we hope that the summer will finally arrive also here in London,
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because, like, I'm really looking forward to just like, drop my umbrella
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somewhere hidden in my apartment and don't take it like, until, I
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don't know if you. Saw, but there was a, I think BBC News said
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that apparently it was the hottest, maybe the warmest
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may in this country on record. Where have they got that from?
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Anyway, Archie, always a pleasure. Thank you very much, as always, for
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joining us today. And as always, we can maybe do it again in two
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weeks time and then we can give our listeners also, like, an update on the
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weather, for sure. Yeah, we'll turn it to work podcasts as well. Cheers. Bye
00:11:13
bye. Thank you very much. And now let's talk
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about steel and scrap with head of steel, Rob Belcher. Rob,
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thank you very much for joining us today. How are you doing? Very well, thank
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you. Thank you for having me. So I would like to start with the first
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question. So I was wondering if you can tell us what's going on on the
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european hot rolled coil market this year. Yeah, certainly can. So
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let's rewind to the start of the year. So in Jan, we saw a brief
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spike in prices as some buyers restocked their inventories. The
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Argus european hot rolled index kicked off 2024
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at 692 spot €25 per tonne.
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Exworks that climbed to 750 54 spot
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€5 per tonne. By the end of Jan, however, this upward trend
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was short lived, much like my New Year's resolutions. Since
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then, we've seen a steady decline in demand,
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challenging macroeconomic environment characterized mainly
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by high interest rates. It's significantly impacted sort of real
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consumption. Construction activity, especially in Germany, has nearly ground to
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a halt once the driving force of the european economy. Germany is now
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struggling a bit like England versus Italy in that euro cup final
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four years ago. And no, I'm still not bit. By April
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22, the index has dropped to its lowest point this year at
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623 spot €75 per tonne and
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has shown little improvement since. As of 3 June
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is holding steady at 635 spot €5 per
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tonne. I mean, there was a slight restocking surge in April, but prices
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remain subdued. High import levels and continued production by
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larger EU mills aimed at maintaining their free carbon emission
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allowances so have kept prices from rising. The futures contract
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volumes on the CME are teetering just under the 400 kt mark year
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to date. This is a slight decline on year on year growth since the launch
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of the contract, but the second half this year seems like it's poised for volume
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growth, with the european economic outlook becoming marginally
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clearer. Thanks, Rob. And we spoke about Europe
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and what about our friends across the Atlantic in the US. Yeah, so the
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us hot roll call prices have really declined over the last month now
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about $750 per tonne. This marks
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a 9.6% drop in May. Service
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centers avoid spot buying, relying on contracts due to the
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ample spot availability you see in domestic mill lead times are
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still steady around three to five weeks. I mean, demand is weak in sectors like
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construction and truck trailer manufacturing. We've subdued buying
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expected throughout the summer, but there is a plot twist. There's speculation
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that domestic prices may stabilise soon as interest
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rates in offshore orders remain low due to long
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lead times. New call's recent price dropped to
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70%. Tonne has really thrown a sort of
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curveball, with some predicting low prices through the summer to attract sort of
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2025 contract commitments, with large buyers holding
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out significant discounts. But no major deals have
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emerged yet. As the HRC supply increases, mills are expected to sort
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of maintain wider spreads to value added products
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compared to historic levels. And we're looking at just shy of two and a half
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million tonnes trade on the CME futures contract year to date, with the options
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contract having a strong first half of the year coming in at just under 375
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five kt. Thanks Rob. And
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finally, what's the latest on the turkish scrap and reba? So
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turkish scrap and rebar, I mean, since dropping below the sort of
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$400 a tonne CFR price in Feb,
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scrap prices have been floating around the sort of 300 7380
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range, occasionally nudged by restocking and rebar demand.
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Mid May saw some offers from the us and baltic regions around the
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382 mark, despite rising collection costs in the Baltics.
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In April, the CFR Turkey price averaged at 3.85,
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but east of 3.82.5. In early May, rebar producers,
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especially in the is Kendra region, ramped up their scrap
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inventories due to stronger domestic demand. Turkish rebar
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export prices have been stuck in the sort of 500
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$8585 per tonne fob range. With
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mills struggling to raise prices after losing Israel as a major export
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market, they're now giving Europe and Latin America the eye. Though demand
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there really remains limited. So mills aim to keep
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scrap rebar conversion costs at about $200
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per tonne, but really, really close to breakeven. So think sort of
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tightrope walking without a net. In the near term, turkish scrap prices
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should average around the $390 per tonne
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mark with some support from the construction sector. However, rebuy
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export opportunities maybe remain limited as ever the
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LME scrap futures contract volumes remain strong, with just shy of
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3 million tonnes traded year to date. The volume growth looks to continue
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throughout the second half of the year, and more and more physical customers entering
00:16:05
the market. This market is one roaring kitty Reddit post
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off becoming the next commodity futures powerhouse. Let's see how it will go in
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the next few months then. Thank you very much, Rob, for joining us.
00:16:16
Cheers. Thank you. And that's it for this week.
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Make sure to subscribe by clicking the subscribe button and wherever you get your
00:16:23
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00:16:27
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00:16:31
FIS. Thanks again for joining us and see you in two weeks time on
00:16:34
FIS Freight and commodity podcast. Freight up.