Iron Ore Insights and Biofuel Benefits

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

and together with Davide, we will be your hosts as we navigate our

major freight and bulk commodity markets. In this episode. Ben

Klang is live in London, so he'll give us his regular update on dry

freight. We also have Halpay who will tell us more about iron ore market,

and we also have a special guest. Eric

Hoffman is managing editor of Enjin, and well chat a little bit

about biofuels and the latest news in terms of the EU

regulations. Hello everybody, and welcome back to free it up.

So, as usual, let's take a look at the latest news and

the index movement since our last episode.

Annual inflation rate in the UK slowed to 2% in

May, hitting the lowest since July 2021 from

2.3% in April, and it was in line with market forecast.

The inflation returned to the bank of England's 2% target

instead. In Japan, the annual inflation rate accelerated to

2.8% in May from 2.5% in

April, the highest reading since February. In the US,

the core BCE price index, which is used by

the Fed to measure underlying inflation, edged higher

by 0.1% from the previous month in

May. And in China, the Kaixin general

manufacturing PMI ticked up to

51.8 in June from 51.7 in

May, beating the market forecast of

51.2 and marking the highest figure since May

2021. It was the eight straight

month of increase in factory activity and

the citizens of countries are heading to the polls.

The UK elections will take place on Thursday, the 4

July, and the second turn of the legislative elections in

France will happen on Sunday, the 7

July. Now let's have a

look at the broad market movements of the last two

weeks. So the big mover since the last episode has been

the c five DC index went up nearly

$10,000 per day, driven up by rising cargo

order volumes in the Pacific and indian oceans, while

tonnage supply remains flat and the market has remained strong

despite looming negative macro factors. On the P

five TC, we have seen a drop of

$2,826 over the last two

weeks, as the opposite was happening, with dwindling cargo

volumes putting pressure on trades on the s ten

TC and the smaller handysize index. They've been fairly range bound

as a week on week since our podcast episode that just moved a few

hundred dollars. Iron ore has managed to stay above the

$100 level despite the index dropping to

$103 a week ago. We've popped up encouraging

figures of stable port inventories despite high deliveries

from West Australia lastly, on fuel, we've seen a steady

rise over the last two weeks. We raised up $10 on

the high social fuel oils and $30 on the

0.5% trade.

Now let's talk about drive freight with Ben Klang, who we have

in London here today. Hi, Ben. Hi, Jess. Thank you very much.

It's nice to be back. I used to work in the same

office. It's not the nicest weather to be coming back to. But

you were saying you enjoy the. Cold, so I do. I went to

Athens a couple of weeks ago and that was 40 degrees running around in

suits. So this is better. Too much? Too much. Let's talk

about what's been happening in the FFA market across all the vessel

sizes in the last week. Yes, thank you, Jess. The

overall index climbed again last week, driven

by the Cape size vessel rates, which jumped

$3,763 throughout the course

of last week. It was a slow start to the week last week for the

larger vessels with July printing at

24,750 by mid week. We

started to observe some positive momentum due to a surge of

activities, primarily with the Atlantic. July

observed highs on Wednesday of 27,000 and

q three rose to $26,000 despite

a worse than expected, though still positive

index. The market still rallied with July paid up to

a high of $28,000. But keep an eye on the

market as last week set up nicely to hit a two

month high and the Panamaxis did not fare so

well. Demands remained under pressure across all major

basins. Further eroding rates last Monday

was mainly range bound, with July and August settled

around 4975 and

14 575 respectively. On

Wednesday, the index has dropped by nine hundred eighty two

dollars to thirteen thousand eight hundred thirteen dollars

since the beginning of the week and July printing down

to a low of 14,200 by the

end of last week. And off the back of the positive

Cape sentiment, we did see the market slightly

rebound off these lows and

July closed on Friday at

4925. As for

supermaxes, there were no dramatic movement last week.

Rates slowly ticked up throughout the week with July hitting

daily highs of $15,050,

$15,100 and

15,150 on Wednesday, Thursday and Friday,

respectively. The back end of the curve remained

actually largely range bound.

All right, thank you for that. So what we looking at volume

wise for that week? Interestingly, last week

was a holiday free week, so activity

rebounded back on its usual busy form,

especially on Wednesday as the Cape size market observed

record daily volumes surpassing

8200 lots among all

vessel sizes, capes and Panamax futures led the

volume. Their daily average came in

similarly. All right, thank you for that. So what are we

looking at volume wise over that week? Well, last week

was a holiday free week, so activity rebounded

back on its usual busy form, especially on Wednesday

as the Cape size market observed record daily volumes

surpassing 8200 lots. Among

all the vessel sizes. Cape size and Panamax futures

led the volume where the daily average came in

similarly at 5120 lots

and 5200 lots per day respectively.

As for the tenors, most action was traded on

July Q three, Q four and Cal 25

contracts. As the June contract expired last

week and with that air H one open, interest

decreased across larger vessel sizes.

Lastly, for the voyage routes, significant volume

changed hands in C five Australia to China

market last week with 2.2 million tonnes

traded on prompt contracts for June and Q three

along with a new position of their

55 kt on Q four. Thank you

very much Ben for that update and I look forward to hearing

from you again in a couple of weeks. Thank you Jess.

And now we have haupe, our senior analyst from our Shanghai

office. So let's start with the first question. What can you tell

us about the fundamentals going in the iron ore

market? During the past week iron ore index

increased from 102 to 110 and I

think after settlement today it's going up more dollars and

it's returning to the some point in May. So it's

higher for as an average of June. So

iron ore was traded in range bound from 101 to

106 for 9% of the time. So it's a boring

June in general, Ireland fell into expectation in our

previous reports at neutral sentiment and because of

fundamental factors were all priced in including high delivery

from Australia, structure shortage of high grade, the

hyperdox level at seasonal and year level.

However, it hadn't changed much during the past four

weeks. In mid run there's yet any clear signal that

Aranor is returning to the bullish market, but in

short run people choose to looking forward. There are some of

the news going on saying China house sales increased

significantly in Beijing and Shanghai and some of the

participants expecting all tier one cities probably have nice

data for each one or at least in

June. So those are supporting the growth

of the ferrous market. So we can see a lot

of property equities listed in China. They had a

7% or even 8% of growth today. So

which also supported iron ore. The sentiment is here.

The fundamental factors were short run. Iron ore is still neutral

to be honest, but the sentiment is here again. The

sentiment is still a little bit of bullish in short run.

Now talking about the coking coal market, so we saw

correction in June, but there was also like a sudden increase in the

first day of July. So maybe you can tell us a little bit

more about what happened. Similar to iron ore in June, it's

a pretty boring month for coking coal market because India

entered monsoon weather. So a lot of typhoons, less

deliveries and demand. So meal was freeze

restocking of seaborne coking coke. So major

buyers were off the market from China. Peak hour consumption in

June obviously entered the slow decreasing trend

because of raining and raining weather in the thousand

cities and extremely hot weather in northern. So then

decreasing working hours on the construction site and

projects and more maintenance going up. It is quite similar in

asian summer. Well, on the FoB australian

market, the sentiment for entire joint was like the

sellers want to obtain some liquidity. However, when

buyers were not in a rush to restock, sellers have to lower the

offers till they see some effective inquiries from buyers.

Even one trade potentially support the market. But if there is no

trade and it will generally mean more price

coming up on the first day of July,

it actually something happened during this weekend.

June 29, the biggest miner of Anglo America,

gross banner, reported a fire accident. Anglo shares

fell as much as 3.1% in London by

closing on Monday. And the gross vander mine

produced about 2.7 or

2.8 million tons of metallurgical coal in

2023, making up 17% of

Anglo America's coal up according to its annual report.

And the company is world third largest exporter of

metallurgical coal. The operation was halt. However,

Angua America has planned to decrease h two

production because the h two production target is already expected

to be much smaller than h one. So it is

still unclear that this production impact is included

or excluded from this target. I think it will be

a game of numbers depend on how they count on the

decrease of protection. Thank you very much. Hao. And

yeah, we will talk to you again soon.

And now it's time for a special guest this episode, Eric

Hoffman, managing editor of Enjin. Eric, thank

you for joining us today. So you're here to talk to us about

biofuels. Could you just give us a few words on why

shipping firms should go for biofuels? Biofuel is

the alternative fuel that most shippowners have been looking into.

It's the one with the most sea trials. It's easiest to

use, it's perhaps the cheapest and safest. And I

also think it's certainly the most available. So ship

owners with vessels that have been running on fuel oil and gas law for

decades, I mean, they could simply ask theyre supplies to drop biofuels

into their fossil fuel of choice at a certain percentage. And more

and more suppliers are offering this and its definitely in

the bigger ports, its definitely available. So if youre looking at

the types of grades you got, B 24, B 30 and B

100, and this doesn't sound very familiar to

everyone in the shipping industry, but the b number is very simple.

It stands for the percentages of biofuel. So it's typically

24%, 30% and 100% biofuel.

But they can come in any blend share that you want if you make

a custom order. And what we've seen is that owners will typically

go for 30% in the area, which is B 30, the most common

grade, and then B 24 in Singapore. Okay, that's

interesting. So why do they go for those specific fuel types? Well,

there's some imore regulations in place on barges, and many years ago

the IMO decided to cap the max share, or biofuel, that a bunker

barge can carry to 25%. And chip owners want to err on

the safe side and go for 24%. So that's where you got b 24.

But in the area it's different. So you can have barges that take up to

100% biofuel and that's because they're classified as inland

river barges. While you got barges and tankers in

Singapore, they're classified as ocean going and

regulated by this cap. The ARA barges are

exempt in a way. There are also ways of getting around this in Singapore.

So you got, for example, vital, one of the main players in the biofuel

industry there. They come up with a way to go beyond

24%. You can bring in specialized

chemical tankers into your bunker operations. Vital has done

this and it took delivery of one such vessel quite recently, at

the beginning of the year. And it's, it's been able to supply a b

24, b 30, b 100, whatever b percentage you

want. So what's the catch with

biofuels then? What are the key barriers to

more uptake? At the moment? I think you look at a

situation with viable economics. There's not much help

from regulators like the IMO and its carbon intensity

indicator regulation, or the EU

with its emissions trading system, at least not so

far. Yeah, I mean, there's been a lot of buzz about

shipping being included in the EU ets from

this year onwards to make shipping firms pay for their

carbon footprints for the first time. How have you seen

the effects play out? The EU has succeeded in making

shipping firms liable to pay a little bit for some of their

CO2 emissions to and from Europe in between them. The

EUTs is phased in about 40% now, and

because of a low carbon price, there's not that much to pay for ships

yet. In fact, carbon costs are nowhere near the

magnitude that they need to be at to bridge the price gap between fossil

fuels and renewable alternatives like biofuel. The most common biofuel

grades are around twice as expensive as the most common

fossil grades, which is, you know, Blsifor and Ellis and

Joe in Singapore and Rotterdam. So you'll see inquiries

from bunker buyers about biofuel pricing and availability, where they can get it.

But some buyers already, you know, sort of monitoring bio and

oil product markets. Without the strong

incentives, it's hard to convince someone to pay

extra for greener molecules, especially in shipping, which

extremely competitive on cost. And I think

partly also because bunkers is the biggest

operating cost on ships, and that really makes the

bunker industry extremely price sensitive, which speaks against biofuels at the

moment. So they will inquire and then they'll go like, look at the price

tag. Maybe not for me. I don't need to do it. Why should

I do it? We get this question. It's like, do I have to do

anything, or can I kick the can down the road? And I

assume as the EU Etss start

phasing in, you probably will have to start thinking about that a bit more

seriously. But as of now, which customers are willing to

pay for green shipping? Well, it's very split. So

it really boils down to how close you are to the end customer

or a consumer, and how willing the

consumer is to pay for greener shipping. For example, you have

a car manufacturer in Germany. It makes less sense

to ship an EV, an electric vehicle

from Germany to Norway, on a vessel running on heavy fuel oil or gas

oil, because that EV will then

hit norwegian shores with the carbon debt. So it has to repay that carbon

debt before. I mean, it has incurred a carbon debt before it's even taken its

first drive. So for the manufacturer to sell the

car with a clean carbon slate, it either has to go out and

source voluntary carbon offsets or pay extra for

freight to lower its actual external emissions, which we tend to

call scope three emissions. It's really a

split market in terms of ship types. So you see, in

addition to vehicle carriers, you've also got container ships and passenger

ships, like cruise ships and ferries. There are other early

biofuel adopters and they're close to the

consumers of goods and services, and they can easily, more

easily splash out on biofuels because their customers are willing to pay

for low emission products. So what we see in the market, and this has been

confirmed with bunker buyers that we've been speaking to and

also bunker suppliers offering biofuels, is that

scope three is the number one driver of

biofuel bunker demand at the moment.

Thanks, Eric. And so, switching gears to the fuel EU

maritime, which kicks in into a forest

from next year, how much biofuel do you need

to have just to be compliant with this EU regulation?

I think, David, if you go down the biofuel route

and you pick fame, which is a type of biofuel, you need just shy

of 3% of it to blend it with

Vlsifo, and then you'll just be

complying with that regulation. But it all depends on the greenhouse gas intensity

of the particular biofuel batch that you use, and that depends on

feedstocks. So it could be around 3%, which

equates to about 15 grams of CO2 equivalent per

megajoule, which is a tough one to pronounce,

but it boils down to the greenhouse gas intensity. And we heard,

we've heard greenhouse gas intensity is of less than ten as well. So 15

at the high end, ten, maybe five if it's a squeaky clean

biofuel. And that would obviously mean that less than

3% is needed. Hold on a second, because you are introducing here the

greenhouse gas intensity, why is the key here?

And why not just, I don't know. The CO2, for example,

with the regulation, the fuel and maritime regulation, the EU wants to

trigger fuel switching. So for some ships to consume more

sustainable fuels and not just pay their way out of it.

And that's why the penalties of the business as usual

approach are set high, and it will increase exponentially

in the coming decades. Unlike the EU ets, where

you'd know where you'd now rather pay to emit CO2 because

the carbon price is low, you wouldn't be wise to do that with fuel e,

because fuel e might with fuel e amount time. The EU

aims to quantify the damage of the energy used by

ships and the damage it does to the environment, and express that in grams of

CO2 equivalent per megajoule, you got nitrous

oxides and methane in addition to CO2 that are greenhouse gases.

And they got much higher global warming potential than CO2.

So you'd count them many more times than CO2 in

your calculations of the greenhouse gas intensity. This makes

LNG, for example, much less favorable than it would have

been with just CO2 counting because of its

high. Well, it's essentially just methane, since

sustainable biofuels are virtually methane free and they

absorb carbon as well as releasing it through their life cycle. So

it's on a life cycle assessment. They're neutral, or can

be virtually neutral. They only have a fraction of the greenhouse gas intensity

of fossil fuels. And the lower the greenhouse gas

intensity, the greater the reward in fuel and maritime.

And what do you think is the best energy option to comply with this new

regulation, then? I don't want to talk about biofuels too much, because there are

other great alternatives out there, but I think biofuels would definitely be

the cheapest way for most EU trading ships to comply.

So in this business as usual scenario, for

ships running on VlsFo and doing as they do

now, they will incur a penalty of about

$58 per metric ton for the fuel that they consume

in fuel and maritime, whereas you got

a much cheaper way out with biofuel. So if you pay a premium

for your 3% fame, you pay a premium of about dollar 13 per

metric ton over the vs for price. So it's about a quarter and less than

a quarter of the price of opting for the penalty. Alternatively,

there's another route which is kind of more sophisticated,

which is that you pool your ship with other ships running

on a higher percentage of biofuels. So like 30% or 100%, and

then you just average it out across that pool of

ships. And that can be a pool of ships or just

your fleet, so you can average across your fleet or

several fleets. Since it's the summer, I'm thinking of a pool where I would like

to dip in, which is definitely not this one. So what is this pooling

option? Do you think that many will go for that or it will be

just left for us? Yeah, I think there's a

massive awareness campaign of the benefits, not just

the penalties of fuel in maritime. For those ship owners

that are forward thinking and have been planning this for years, there's a

lot of benefits to reap. So, for example,

it makes little sense to run all of your EU trading ships on just

3% biofuel on those voyages in the EU, because,

I mean, it would be a logistical headache to get them all fueled, and it'd

be expensive to pay the premium biofuel blending and barge

deliveries per vessel. So it's hugely inefficient. So what's better

is to run your ships that you run these ships

that you know will bunker in the Netherlands on 30%

biofuel or 100% biofuel. And the Netherlands is key because there's

a market mechanism there in which you get rewards

for selling sustainable biofuels. So dutch biofuel suppliers will

get credits from the government for selling sustainable biofuels that

qualify as advanced, and then those

credits are tradable in the market so they can sell them for a fee.

And then, you know, as these are having

monetary value, some of that value will then pass through to the

end buyer, which is the ship owner, depending on how the

margins are distributed. But all in all, you're looking at, you know, a

price difference of sort of 80 $90 per

metric ton versus Belgium, which is the neighboring country.

So huge differences just within the Ara area.

So, I mean, pooling basically gives you more options

to get your fleet compliant and avoid hefty fines.

And then I think with greater economies of scale,

costs will come down and you don't have to bunker biofuels as

often, which saves you money on what the suppliers

like to charge for, which is their inconvenience and

logistics cost of delivering this biofuel. Thank you,

Eric. I think this is a topic that everyone's been thinking about a

lot lately. In the coming years, as we see those regulations

phase in, I think it's going to be something that a lot of the shipping

industry is going to have to consider. So I'm glad that we've had you on

here to explain that for us. Thank you very much for

coming. And that's it for this week. Make

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Freight up.