TL;dr EU ETS, and Energy Alternatives
Welcome back to another episode of Freight Up, the podcast where we deep-dive into the latest trends in the shipping and commodities markets.
EU ETS explained
As shipping companies face new regulations we've got a freight container-full of insights awaiting us.
The EU ETS conundrum is upon us and our experts Luke and Hugh will unwrap the layers of complexity in managing these emissions, the role of traders in a green future, and the strategies for dealing with EU allowances.
Also, here's the link to the site they mention!
Panamax rates
In this episode, as markets navigate through choppy waters, we'll explore the strong currents in the Panamax rates driven by an insatiable mineral demand and the emergence of Indonesian coal cargoes that's pushing volumes to new heights in Asia.
We're also seeing significant fixtures across the transatlantic with a special eye on mineral cargoes.
Talking trade trends, we'll dissect the flurry of activity in the Dry FFA market, especially within Cape, Panamax, and Supermax contracts.
Coking coal chaos
Then, there's China where coking coal futures are surging—an aftershock of governmental inspects and unfortunate mining mishaps.
Despite this, the outlook on Fob Australia Coking coal suggests that the supply may remain tight, with miners jostling for their slice of the pie.
LNG's future
Our guest, Dr Jonathan Gaylor, who has 10 years’ experience in alternative fuels, currently serving as the Alternative Fuels Manager for Navig8, a prominent shipping and trading company that includes Integr8, will share his expert take on LNG's bullish future.
We'll uncover why LNG dual fuel vessels may hold the competitive edge and discuss why gas price volatility could be a silver lining for traders.
With the winter season ahead, LNG prices could spell out future trends.
Deeper dive: Freight Rates and Coal Futures on the Rise
Despite jitters from a delayed OPEC meeting, the bulk shipping market has shown resilience and even strength, especially in certain sectors.
Over the past week, Panamax rates, instrumental in transporting dry bulk commodities, have surged, buoyed by a robust demand for minerals.
Additionally, with the emergence of significant Indonesian coal cargoes, record volumes are shaking up the Asian markets.
Similarly, coal futures in China shot up by over 8% within two trading days, a spike attributed to government-led mining inspections and unforeseen mine accidents.
These regulatory measures are expected to constrict production for a few months which could tighten the supply further and uphold market rates.
The Green Evolution: LNG Vessels Gaining Traction
A significant topical shift revolves around environmental considerations in shipping fuel choices.
The investment and interest in LNG dual fuel vessels are indicative of a growing confidence in LNG’s competitiveness and reliability as a greener fuel alternative.
Our guest Jonathan Gaylor, a veteran from Navigate, shared bullish sentiments on LNG's future.
The market is monitoring the price volatility in gas – a scenario beneficial for the trader community – and hinting that future new builds may lean heavier towards LNG fuelled vessels.
As Jonathan expressed, this is fuelled by the current availability and the potential of LNG as a stepping stone towards other green fuel options.
EU ETS Complexities and Opportunities
Another key discussion point on 'Freight Up' this week concerns the EU ETS (European Union Emissions Trading System) and its implications for the bulk shipping industry.
Amidst the complexities of managing the EU ETS responsibilities? Challenges like who bears the payment obligations, the hurdles in opening a trading account, and the intricate dynamics of trading EU allowances.
Contrary to the straightforward yet volatile oil market ecosystem, the EUA system presents a multi-faceted challenge, requiring intricate strategies and the need for industry players to adapt quickly.
Yet within these challenges lie opportunities for warehousing EUAs and speculative gains, with prices potentially skyrocketing in the long term.
The OPEC Meeting Postponement and Its Ripple Effects
Lastly, focus was drawn onto the postponed OPEC meeting and its potential wide-reaching consequences for crude oil markets and, by extension, bulk shipping rates.
Archie underscored that while the crude oil market experienced volatility due to the rescheduling, there's a market consensus that OPEC might extend production cuts into 2024, propping up prices to some extent.
Nevertheless, caution prevails as adverse data from China could cap major upside gains, and thus, the shipping markets remain vigilant.
As 'Freight Up' continues to shed light on such critical developments, listeners are reminded of the intricate interplay between global events and the freight industry – a saga of continuous waves and what lies beneath them.
Timestamps
00:00 SGMF and majors improve bunkering; price challenges remain.
07:26 Viable shipping sectors for Prabs, considering market changes.
09:57 Ship owners face challenges in managing risk.
12:45 Winter will showcase LNG market's future direction.
17:05 Two likely scenarios regarding ship management contracts.
20:41 Malta, Netherlands, Spain, Sweden, and Cyprus requirements.
25:06 Warehousing EUAs for clients offers advantages.
28:21 Uncertainty over oil production cuts extension speculation.
29:05 Oil prices fell sharply but recovered quickly.
33:14 Refinery maintenance caused high fuel prices.
37:59 Cape Market saw surge in rates, trading.
39:14 Iron ore freight rates surged due to strong demand and active trading in China.
43:36 Record future volumes in Dry FFAs market.
47:14 Limited impact on Fob and coal markets.
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Jonathan Gaylor discusses why he feels bullish on LNGs and
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after his segment, you might too. In Ferris Complex news,
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China coking coal futures increased by
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8.13% over two trading days. Hao
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Pay is here to discuss what happened. If you have questions about the
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EU ETS, I did too. So I brought in Hugh Taylor
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and Luke Hanley from our EU ETS consultancy to give me some
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answer, others all this and more on Freight Up. Freight up.
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Hello, and welcome to freight up. My name's Fernanda and I'll be your host as
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we navigate the seas of freight and commodities. This week's episode FIS a
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bit of a long one. So grab some popcorn, go out for a run,
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do whatever you need to do, because it is a good
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one. This week we're joined by Navigates, Jonathan Gaylor
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FIS's very own EU ETS consultants hugh
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Taylor and Luke Hanley. A Smith seven.
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And how pay? So let's dive on in
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here's. Navigate's jonathan gaylor. So we are in the
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booth with Jonathan Gaylor from Navigate.
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Jonathan, how are you doing? I'm very good, how are you? Very well, thank you
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for inviting me. Oh, so excited to have you. Welcome to where the
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magic happens for the frayed up community. So you
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are the LNG guy? Apparently so.
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Apparently so. Would you please tell the freight up community
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a bit about yourself? Sure. I'm currently working at Navigate, working
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as a business manager, alternative fuels manager for the wider
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group. I work alongside the bunker trading company as well called
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Integrate, trying to head up a bit more of the trade on the LNG side.
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Before that, my background was predominantly also in the LNG
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alternative fuel space. I worked for eight years for Affinity
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Shipping, a shipbroking company also located not far from
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here, and basically forming new LNG bunker
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hubs on a commercial basis. And before that, my background was slightly
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different, it was geological. So it's a bit of a shift. Jack
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of many trades. Yeah, well, the oil price went down, so I had to find
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another job outside of oil in geology. Oh,
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my goodness. I love it. And your time at the ship broker explains why the
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screaming outside didn't deter you. Exactly. Is that home for
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me background, though? You were like
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home. I guess the
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first question I have is a bit of a two parter and that's
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what are the difficulties that you've seen so far in the LNG
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space? And tell us a bit more about the journey of other
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alternative fuels. Everyone's focused on alternative fuels. We should
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be looking at a wider portfolio of fuels from the start. So this is not
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a case of LNG is the one, this is just more of a case of
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coming from, I would say more of a commercial background. What are the
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challenges that we face, particularly in the shipping industry, moving to these
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fuels? Everyone likes to talk about ammonia, methanol
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and hydrogen, but we're just simply not there yet. If we're looking from
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the trading side, from the freight side, we have to look at fuels that are
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available today and within quantity to be able to
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actually bunker. Hence why I'm probably a bit
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bullish today on LNG, but I like to think of
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let's do stuff today rather than let's talk about ten years ahead. So I
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would say the challenges that we face, mainly that there's technical
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challenges always at play. They're currently looking at that in ammonia, they're looking
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at that in methanol. The technical ones are kind of
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overcome now thanks to the likes of SGMF, Society of Gas,
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Marine Fuel and some of the majors that have really implemented the
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bunkering to start with. But really what the biggest challenge
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right now is still the liquidity and availability in the market.
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LNG has been around for 40 plus years, but actually pricing
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it in a smaller package is still pretty hard
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to actually get that costing. I think most people can
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now estimate a rough in tank price on the
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LNG, but still it's still variable.
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Are you coming up prompt? Are you coming up long
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term contract? So the pricing, how to price the
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commodity is still up in the air. I think the other aspect is
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really assuming you have a commodity and then you're also having
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to sell it onto a bunker contract. And that bunker contract
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is very different to historical LNG contracts. We're done on
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like long term deal, 20 years, nothing on a spot
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basis. And now we're going into pretty much one of the hardest industries
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to actually contract in, the fact that you've got these long term charters but
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only a short term offtaker. So how do you manage that
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balance between the two? And I think that is quite hard to manage.
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The other aspect is the challenge which I think we'll see in
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LNG. Well, we've overcome a lot of the challenges in LNG, but
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the other alternative fuels, the other challenges I see is
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the commodity is not really there yet, it's not liquid.
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So how are people going to be trading this more on a spot basis
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that isn't just long term offtake contracts? So it kind of
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seems to me like LNG is another
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level of complexity beyond where the other alternative fuels are. Does
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that kind of speak to its commercial viability? Correct. I think it's also
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due to the sheer quantity it's been around for 40 years,
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that helps. Exactly. And on top of
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that we're seeing new pricing mechanisms being evolved in the
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market. Over the last ten years we've had the emergence of JKM, which is a
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Japan Korea spot marker that's only really in the
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last five years started to become more tradable. And there's also the futures
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on that as well. So I think overall we've taken this long to
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get to even just spot prices of LNG. So I think
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we're still not there yet, even on smaller packages. So how are we going to
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replicate that with the alternative fuels will happen.
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We are optimistic, but there is a ways to go. So, on that
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note, what are some of the barriers that you see for
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some of the up and coming alternative fuels? I hate
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saying the chicken and the egg because you go to
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any interview and they'll say the same. So I'll try to not lean on that
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too much. I would lean on what is actually the difficulties of getting
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there. Methanol is not going to be good unless it's green and same with
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ammonia. Otherwise it's just worthless, as I think. You just don't
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like the color blue is what I'm hearing. Not my color.
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And so when you're making it, let's say you're making it from electricity,
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green renewables, you have like, let's say a PPA
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contract, a power offtake agreement. These are
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huge contracts that are very difficult to sign
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long term. They're just very difficult contracts. And then
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you're having to merge that with some kind of like bunker offtake contract. If
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you have a container vessel that's willing to do, let's say
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a long term ten year, 15 year horizon, that's fine.
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But many ship owners aren't going to sign up for a ten to 15 year
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offtake agreement. It's going to be hard for people
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to produce alternative fuels just for the marine
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sector. If they're not going to sign long. Term
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contracts, that makes a lot of sense.
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So as far as long term contracts go, that's kind of within the realm
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of container liners. So can you tell me a bit more about that?
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Absolutely. I think, you know, you have to look at the viable
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shipping sectors that would suit Prabs probably more
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the long term things, and that is containers and crews, and that's because they're going
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there regular. But I think we saw before that
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CMA and these other shipping liners, they were willing to sign
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up longer term contracts and this was pre COVID,
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so LNG prices were pretty low. They were, I think,
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you know, the long term it looked pretty actually, you
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know, since COVID since the natural gas prices, the war
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in Ukraine, the volatility in price FIS too much. So
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we saw a lot actually go back to other conventional
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fuels because the price was so high. So I would say whilst
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containers are suited for the long term, they're being,
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I would say, a bit more conservative now of signing up those volumes. When you
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buy a dual fuel vessel, you want to have that optionality between the
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fuels, you want to pick the cheapest fuels. So what we actually
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saw, which was a big thing in the market, was actually CMA apparently,
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is going to convert their new building orders from some of their methanol
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to LNG. And the one thing to note about that is
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to the LNG vessels or the LNG dual fuel,
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they do cost more than a methanol dual fuel vessel. But if they're
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willing to make that investment correct. And I don't believe it's.
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Just from the green side of things, I think it's very much just shows
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that I would say the medium term, most people see that
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LNG will be a very competitive fuel in the market.
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There is a slight green side to this as well, but I also think willing
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to pay the added capex shows the market that
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this is probably the most reliable green fuel for the medium
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term at present.
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Fantastic. Well, I mean, it sounds like it's pretty great
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to be you right now. Well, this volatility
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is actually helping traders. We're not going to lie, which is good for us. I
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mean, we want to get into this space. We have the expertise and
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historically everything was done long term, direct, and I think people
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now are seeing the role of the trader, particularly in the bunker fuel side for
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RLNG. So, yeah, it's good for us. I mean, TTF and
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all these gas prices, they're changing on a daily basis and
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they're changing massively as well. So going back to
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the subject of new builds as we cast our eye
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to the future, what do you see the future of new
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builds looking like for the next five or ten years? I think
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it's one of the hardest ones actually, for ship owners to go out there. You're
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asking a ship owner to go out and spend huge
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amounts of capex on a 20 year asset and
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it's probably backed by a very short term charter. So how do you manage that
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risk? Again, I am bullish more
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on the gas side of things just because I see that we
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have the fuel today. And there is also a way that you can
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actually manage that over the next 20 years. You can start
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with LNG, then go to bioLNG, slowly input
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bio LNG and then you could end up, I don't know, methanatin, hydrogen
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or something like that. So there FIS a pathway to those vessels. When
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it comes to methanol, if you're a tanker, if you're a bulker, you're
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reliant on other industries supporting that production
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because you will not be supporting the producer on that.
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Your volumes just aren't big enough or the offtake isn't as
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reliable. So I would definitely know. Probably
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the methanol is likely the way that people will go because it's
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a lower capex. But the actual thought of actually green methanol going
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into those tanks, I don't actually think they'll be seeing green methanol for a long
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time. You heard it here first, folks. Jonathan's
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Hot, take one last
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question. It's a bit of a saucy one. Okay, nice. As far
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as traders are concerned, what do you foresee their role
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looking like in terms of alternative fuels for,
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I don't know, the next decade? It's something that
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we think internally all the time. The role of the trader
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is changing, that's a fact. Bunker fuels will never
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be just basis price anymore. There's going to be other
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factors. There's the environmental factor, there's going to be the
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EU ETS, there's going to be the fuel EU. If people start putting a charge
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on CII, there's going to be all of these different
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elements that will play a role in selecting your fuel. And the other
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aspect is as well, you still have the role of biofuels. Let's say you have
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a dual fuel vessel for LNG. You still have LNG bio,
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LNG biofuels, conventional fuels, scrubbers. There's
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all these decisions to make and you have to make the right one. I think
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the trader has to be kerry aware of the pricing
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in the different regions, which is going to be very hard considering
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these prices aren't transparent. I very much see that the role of
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traders should actually become more important to the
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client because they'll be able to cover a lot more.
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For those of us who are interested in
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watching the LNG space, and maybe
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we don't really have a means to do that or the channels,
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what would your suggested course of action be there? I
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would just very much keep an eye out on how this winter is going to
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be. I think it's going to be a huge show to the market
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of where LNG prices are heading. We're
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just one winter away from the Ukraine war with
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the supply issues and the highs last year, and we're
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already going into this winter where we have enough supply in Europe. The
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prices are coming down, we're bunkering already LNG in
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Europe. So with 70% new capacity over the next few
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years, if we come out of this year where we believe that there is
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sufficient supply, I'm quite bullish that the prices are
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going to show people that LNG will probably be the fuel up until,
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let's say, 2030 or something. Well, there you have it,
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folks. Jonathan is bullish on LNGs,
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and you probably should be too.
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Let's talk about the EUETS with Hugh Taylor and Luke
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Hanley. So I'm Hugh Taylor. And I'm
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Luke Hanley and we manage. A consultancy at FIS which
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helps our shipping clients prepare for the EU ETS
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phenomenal. The EU ETS not the most
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straightforward of things. What are you guys doing to help? So
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that's the EU emissions trading system, which from January
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next year will include shipping clients.
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We at FIS have a lot of long standing
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relationships with many shipping clients. So we've done a lot of thinking
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about how best to simplify this complex situation
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for our clients today. We thought we would talk about
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three practical issues our clients are facing
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and then we'll offer some insight and solutions around these.
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I'm assuming because you've dedicated an entire roadshow
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to this. In fact, you just got back from Dubai, I believe, and Luke's
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crawled out of whatever conference he's been at recently.
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I'm assuming we're not going to be able to capture everything on today's
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episode. Correct. So I think we better skip over the basics
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for anyone listening would like to know a little bit of background on how the
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EU ETS works, the EUA market and price
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drivers, emissions, price, risk management and trading
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strategy. Check out the analysis section at the bottom of our Green
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Transition webpage, which is at
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Green transition. So I've written some expansive
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articles on those topics. Fantastic.
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And because we're so technically advanced here at FIS,
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we've actually hyperlinked that on our website. So can
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you give us an overview of what we're going to be covering today? Yeah,
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sure. So the three issues that we're going to talk about today are who
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pays, the challenges of opening a trading or registry
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account and how to get around them, and how best to trade EU
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allowances. EUAs. So the first one is
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probably John's favorite question, which you both have been
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graced with very frequently around the halls of
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FIS, and that is who's responsible for paying for
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this? So that's right. It's a bit of a thorny question among clients. The question
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is who bears a responsibility for surrounding EUAs on September 30,
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especially when a ship owner delegates the Ism code compliance to a
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manager. And in short, the answer really is it depends. In a September
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draft text, the Commission defines the responsible entity as the shipping
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company. So this definition includes owners, managers, bareboat,
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charter, or indeed any entity that assumes the responsibility for operation
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owner. So while the draft does stipulate, the ship owner has
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principal responsibility for ETS obligations. A manager, if
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delegated responsibilities through a management agreement, is obligated to
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submit allowances. So therefore the parties can effectively choose who has
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responsibility. If the manager is chosen, he must present to the relevant
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administrating authority a documented mandate from the ship owner,
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including contact details. If he doesn't, well, the ship owner will
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be deemed responsible. The Commission aims to finalize regulations
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in Q four of this year before the EU ETS for shipping commences on
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January 1 of next year. We expect them to provide more
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clarity on this situation. Keep your eyes peeled. Or keep your ears
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peeled. So how does this actually play
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out in practice is my question here. How we perceive it at the
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consultancy here is that two scenarios are likely. Option one, the
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ship owner and the manager will decide responsibilities in their bilateral
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management contract. And then option two is that the manager remains
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responsible for EU surrender. If the ship owner delegates, then the Ism
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co compliance. So this is a process that has been in place for the past
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two decades, although recent indications suggest the EU is probably
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going to shift its thinking towards option one. Meanwhile,
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simultaneously, member states must ensure that if another entity assumes
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ultimate responsibility for fuel purchase or ship operation, for example,
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the shipping company, via contractual agreement, is entitled to
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reimbursement for surrendering costs. So I guess
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my big question is if Luke and I have a contract,
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and in that contract luke is responsible for surrendering
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these. You know, luke I don't
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know. Disappears? Who's
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responsible for these EUAs. Is there a penalty? Do I get the penalty? Does
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Luke get the penalty? What happens? That's freight. So there is a penalty to
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disincentivise this behavior. So if the ship owner fails to transfer
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allowances to the manager or becomes insolvent, then the manager is left
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empty handed while still accountable for these obligations. So,
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depending on a ship's trade and emissions, noncompliance costs can average
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€500,000 per year or even more. Coming back to this example
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that Fern used, basically, Luke will get off scoff free while Fern is left
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holding the bag. Well, Luke would never do that to me, first
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of all. But second of all, what solutions are available
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for those like Fernanda
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that are unsure about what their surrender requirements are?
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Yeah, so there definitely are a few solutions out there. And one in particular that
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comes to mind right now is for those uncertain about future obligations. Creating an
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EUA buffer is definitely a popular strategy amongst clients. You can do this
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via trading account futures or something we call warehousing, which we will get back
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to in a minute. For legal disputes or questions between charterers and ship
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owners, contact us and we can introduce you to our preferred legal
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specialist who is very experienced in these negotiations.
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So I'm assuming we have something. And by we, I
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mean the European Commission has something a bit more concrete for
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how to open a registry account. Well, actually, as it
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stands, this is equally confused
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and it has been a messy scramble for shipping
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clients, to be honest. Shipping clients aren't currently
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able to open a Maritime Operator holding account
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or a Mohaw, which is the account from which they will
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eventually surrender their EUAs on 30 September
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2025. So they're not able to open to this account until
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February 2024. So that's when the commission releases a
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list that assigns shipping companies to a country,
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to a national administrator within a country. Now, while
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it's widely stated that you are currently
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already able to open a trading account on the EU
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registry, in reality, this is also not the case. One of
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the central stipulations most national administrators of the
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EU registry seem to have put in place is a
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requirement to be VAT registered locally.
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Now, given many shipping companies are incorporated in non EU,
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often exotic jurisdictions, we have a problem.
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But equally, I've spoken with English clients facing the same issue. So
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theoretically, what would my options be if I didn't have a VAT
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registration in an EU country? One country that decided
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to not make such a stipulation was Malta, which instead
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requested you just have an EU bank account. But they were so
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flooded with applications, basically they closed to further
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applications, and with a backlog of some 300
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among just a handful of staff, there were other exceptions.
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So Netherlands don't require EU VAT
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registration, just an EEA bank account, but
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they do do a risk analysis on the country of origin, which means
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some of those exotic locations might present an issue. And they also
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request that you register with the Chamber of Commerce, which essentially
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means setting up a local entity and paying corporation tax
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on local business, which is not ideal.
Speaker:
Meanwhile, Spain and Sweden don't require local VAT registration, but
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do ask that one of your two minimum account representatives have permanent
Speaker:
residence in the country. And finally, Cyprus
Speaker:
requires VAT registration in an EU
Speaker:
country, although I have been told competing versions of
Speaker:
this by different contacts within the registry and their situation
Speaker:
seems likely to change. So in short, if you don't have
Speaker:
and EU VAT number, the situation is pretty
Speaker:
difficult right now. The EU will have to change things
Speaker:
in Q Four, we believe, to provide a clear path forward
Speaker:
and clear up this mess for the many medium and small sized
Speaker:
shipping clients that are unable to get started. Just to
Speaker:
clarify something here, they can't actually buy
Speaker:
EUAs, then there are actually. Other
Speaker:
routes, there are other ways they can do it. Firstly, for example,
Speaker:
you can buy futures even without a trading account
Speaker:
through some clearing members, as long as you promise to trade out of the
Speaker:
futures before expiry. And if you don't have a clearing account,
Speaker:
there is one other option that luke's alluded to
Speaker:
warehousing. Warehousing, that's correct. But before we get on to
Speaker:
that, we should probably first go over our final topic, which will give an
Speaker:
introduction into how to trade EUAs. All right, fine. Then tell
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me what is the best way to trade EUAs?
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Okay, so you can buy EUAs in the primary market,
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which is via the auctions hosted by EEX,
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or on the secondary market, which is via banks,
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brokers or traders. They come in the form of futures
Speaker:
or physical EUAs. These are just the contracts that go into
Speaker:
your registry account and that you will eventually surrender. While of some
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of the bigger, more established traders are keen to hedge
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the futures, perhaps in line with their strategies
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on bunkers or forward freight agreements,
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FFAs many and particularly the mid and
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smaller size shipping clients are seeing value in buying physical
Speaker:
EUAs on the OTC market. Why is that? The
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advantages of this are many and they can probably be split
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nicely into two groups, basically cheaper and easier. So
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cheaper? Well, firstly, maintaining an auction account on
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EEX can be expensive and it's typically populated by big
Speaker:
industry. The physical EUA is seemingly cheaper up
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front. So over the past three years, the benchmark deck
Speaker:
23 future, which is the main future that's traded, has been on
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average some three to 6% more expensive than the spot price.
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Finally, big banks build in credit risk and large
Speaker:
margins, thus adding to the price now easier. So
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to trade physical, clients don't need margins or clearing
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accounts. OTC physical can be obtained in custom,
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more convenient lot sizes of whatever size you like. So
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the smallest size in futures is one lot, which is a thousand EUAs.
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But the smallest size in OTC theoretically could just be one
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EUA, although it wouldn't be much worth it from a cost perspective of the
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provider. And many people often prefer physical products
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to futures because you can hedge as you go and spread the risk. And
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finally, the liquidity is very good on the physical. So basically,
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you would come to a broker like us, give us your size, we field
Speaker:
it to the market. Now, we work with all the top eway traders, many of
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whom have got their own large inventories, and we would then show you
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the best price, which is quite a big advantage over going to
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just one trade house. So, long story short, cheaper, easier and
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cleaner. So now, is one of you going to tell us about
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warehousing? So I'll do the honors on that one. Yeah, it's one idea
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gaining traction is that of warehousing EUAs on behalf of clients. Some
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of our preferred partners that we work with offer this facility, whereby the client
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agrees for the EUAs to be held for them and delivered to an account of
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their choice at some point in the future, given ten days notice. So
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these partners even offer a warehousing yield to hold your EUAs, which at the
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last time of checking was in the region of 2% per annum. I'll
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list a few advantages of this option. So, number one, you avoid the
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admin involved in trying to open a trading account with overburdened national
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administrators. Number two, being able to buy now, so getting ahead of
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the game. Number three, many don't even know yet whether the onus will fall on
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them to actually buy the EUAs. And finally, and most
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importantly, in our opinion, the idea of going long on EUAs is
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something attractive, given that stringent climate policy and their
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subsequent tendency to increasingly limit supply.
Speaker:
And crucially so, the idea of going long
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EUAs is quite attractive to our clients at the moment,
Speaker:
given the EU's stringent climate change policy and the
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subsequent tendency to increasingly limit supply. Based on
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current forecasts, many leading at EUA analysts expect the
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EUA price to rise significantly to 2030, well beyond the
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100 euro mark. For example, analysts at London Stock Exchange
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Group two weeks ago projected the price to rise above
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€400 by 2040. Well, we've covered a lot of
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information in a very short amount of
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time, but I feel better informed. I think the freight up
Speaker:
community feels better informed. So thank you so much for coming
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on. Yeah, thank you for having us, Fern. And just like to say, yeah,
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get in touch. We offer weekly intel reports to our clients
Speaker:
and we do special reports on things such as main
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price drivers in the market, short and medium term price projections,
Speaker:
et cetera. And we can answer any of your questions. So, yeah, get in
Speaker:
touch and we should help you along. Yeah. Normally when people say,
Speaker:
and I just like to add, they follow it up with, I'm a huge fan
Speaker:
of the show, so I'm just going to pretend that's what you
Speaker:
said. Oh, and I'd just like to add I'm a real huge fan of the
Speaker:
show. I think you're such a natural. Oh, God bless you. Thank you
Speaker:
so much. All Freight, let's join the people's broker to
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discuss the oil market. Archie, I know that
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you are literally one of two people on the desk right now, so we
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appreciate you joining us. Ricky's back. So that's why I've come. Ricky got back
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from lunch? Yeah. Oh, what did he have for lunch? I think he's got Pally
Speaker:
kitchen. Don't know what exactly he went for. But I'm going to go
Speaker:
for the Falafel Bowl after this, but enjoy it before then.
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What is going on in the oil market? It's been pretty choppy.
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Lots of ups and downs over the last week, to be completely honest.
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It's definitely all eyes on the OPEC meeting, which
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kind of leads into why it's been choppy,
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because the OPEC meeting was initially supposed to happen on Sunday, just
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gone. Yes, but last week that got
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pushed back. And when that got pushed back,
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crude just dumped. Yeah, it came off really
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aggressively as soon as that news came out. Like someone rescheduling a
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tinder date, you just don't know if you're going to come back from that. It
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creates uncertainty. Like the tinder date, you don't know what the outcome is going to
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be. I think general consensus leading up to that meeting before it got pushed
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back was the decision was going to be for the oil production
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cuts to be extended further into 2024. So with that
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being pushed back, everyone was like, oh, has there been disagreements?
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Speculation starts happening. It snowballs crew really came
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off because obviously that level of support that would have been added by production
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cuts being extended was almost it's not been taken away by any means,
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but like I said, it adds that kind of level of
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mystery. So it got pushed back to this Thursday, as in tomorrow.
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Another thing when the crude really did come off, it was a week ago today,
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actually. It was last Wednesday that it happened. It crashed well over a
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dollar, like sub 80 levels down to well, the low was actually
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78 48 at the time, having traded around like 81
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50 most of the day. But then in the afternoon, it pinged back up
Speaker:
pretty much instantly recovered or regained all the losses to
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settle, I think, slightly higher on the day. There was a lot of volatility
Speaker:
in the market there. The downward pressures did linger for the rest of the week
Speaker:
and then into the beginning of this week, particularly from, well,
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obviously off the back of that announcement. But then, yeah, there was lingering pressures from
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EIA data, which showed. A massive US crude
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stockpile build of like 8.7 million barrels, which is substantial
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solid. Yeah, that was obviously pushing
Speaker:
prices down a little bit. There was a small gasoline stockpile build as
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well in the US. Which is often quite a good indicator of
Speaker:
low consumer demand. So then kind of demand worries
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sneaking back in as well, applying downward pushes on the price.
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Most times that we've dipped below the $80 per barrel mark
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recently, there has been support included.
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Yesterday there was another announcement regarding the OPEC meeting saying
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that it possibly could be pushed back further. Basically what we're hearing is
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there's quite a lot of disagreement within the OPEC members
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regarding this policy on the oil production cuts.
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As far as the market is aware, the meeting
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is happening tomorrow. But like I said, this news came out
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yesterday, just that it could be pushed back further. So we
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saw a similar thing happen than we did last Wednesday. Not
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quite as drastic, but it was a sharp decrease, down about a dollar,
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again, sub 80 levels. But then we did find support in the afternoon. It kind
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of traded back up to higher levels, but that was from quite a
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sharp fall in the US dollar. And there's normally kind of an inverse
Speaker:
correlation there. When US dollar gets less valuable, crude
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goes up because holders of foreign currencies are buying more oil because they've
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got greater buying power when the US dollar is weaker. So
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that offered support there. And then again, we kind of spiked into the afternoon.
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We spiked to above 82 a barrel coming from sub 80 levels.
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So it's been pretty drastic.
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So this morning, crude services trading higher.
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It's just looking ahead to this meeting, which hopefully happens
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tomorrow. I think the market is kind of banking on
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it happening tomorrow. Unless anything drastic changes, it would
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appear that the expectation is back that production cuts will be
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extended into 2024. And I think that's what's offering support to the market
Speaker:
this morning. Although any kind of major upside
Speaker:
gains are definitely being capped by some weak
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data coming out of China. Still softer than expected industrial
Speaker:
profits, which kind of points to demand struggling in that
Speaker:
region, which has been a kind of ongoing factor, well,
Speaker:
since post Pandemic really. It's always kind of lingering there when it comes
Speaker:
to demand worries, applying that downward pressure on oil prices.
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So let's see what happens tomorrow. Let's see if tomorrow happens.
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If tomorrow happens. Yeah. In the fuel market, I think that the main
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kind of focus of what I'm going to talk about is the front months in
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the very low sulfur Singh
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complex. And they've really, really been
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crashing over the week. Oh, wow. What's been happening there?
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We're coming off of highs from the
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beginning of last week. So looking at the crack, the Sing .5 crack
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that was trading for the December, which is the front month, that was
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trading almost $18 per barrel monday
Speaker:
last week. So right at the beginning of last week, and we're now
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kind of around, we're sub twelve levels now, so
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it's off. A good six or $7 has been lower
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Monday of this week. We saw some super volatile trading in that crack
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contract, which makes the flat price for the marine fuel just fly
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around. I think a lot of it is coming off of Azure Refinery news.
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I think Q Eight is one of the biggest refineries, if not their biggest. And
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the Azure refinery is a massive producer of
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this very low sulfur marine fuel oil. It's been down for
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maintenance and repairs, hence why the crack did get so high in the first
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place. And the front spreads as well because there was
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no marine fuel coming out of that refinery. And being such a big
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supplier, that really kind of affected the market. When the Azore
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refinery is fully operational, it produces
Speaker:
about 200,000 barrels per day of very low self fuel or which equates
Speaker:
to about 12 million tons a year. Anyway, with that being down,
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crack got really high. And then there's been news kind of coming through in
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drips and drabs over the last week, ten days saying, oh, it's going to be
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fully operational back fully operational in the next couple of weeks. And
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that's kind of softened that front crack a bit. I don't think
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that refinery news alone is the cause of all this. I don't think it's
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robust enough, I don't think it's enough production to affect the market in such a
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drastic way. But it's definitely seemed to be the kind of
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catalyst, if you will. And then Monday when we saw the super
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volatility in the 0.5 crack, I think a lot of that was it was coming
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off quite drastically in the front. It definitely hit some stop losses, some major stop
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losses on the way down because it was gapping like $0.50, which is
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aggressive. I mean, normally this crack, if it moves, it's in kind
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of five to ten cent increments. So if it's gapping fifty cents
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at a time, noteworthy. Yeah, it's
Speaker:
seriously dramatic. And like I said, I think there was obviously some
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stop losses lower down as we were coming off anyway, in more of a natural
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way. Those stop losses got hit, sold out a load of positions, and it just
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snowballed the downward spiral. So, I mean, the deck traded as low as $10 a
Speaker:
barrel. It was literally, it was like 1110 50 and then
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ten in like 5 seconds. Everyone was like, everyone was like, what's going
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on? I mean, great time if you're a buyer, right? But
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with the volatility we've seen, it just kind of bounced straight back up. I mean,
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in that morning session, it dropped $2.70, that contract in a
Speaker:
single session. But then it kind of recovered almost like $2
Speaker:
of that loss within the next few hours. So we've seen some real volatility in
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the front, although it's down to more kind of stable levels than what
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we were seeing when it was like $17 per barrel. $18 per barrel.
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And same for the front spread on the sing .5. So the deck versus
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jan, that's off like $20 since
Speaker:
two weeks ago. To yeah, it's the same story. Basically. It's the same
Speaker:
narrative with Azor being down. That near term supply is
Speaker:
tight. So that's why the deck was trading at such a premium to the jan,
Speaker:
which is it was good for those who need to roll
Speaker:
positions from deck to jan. They're getting quite a hefty
Speaker:
premium on that. But again, that's now trading around $10 per metric
Speaker:
ton from like over 30. So, yeah, some real kind of drastic changes in
Speaker:
the fuel market. It seems to have kind of settled a little bit today and
Speaker:
yesterday almost maybe priced in. But yeah, it'll
Speaker:
be interesting to see kind of how that unfolds when Azura is fully back
Speaker:
operational. China have issued an
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additional 3 million tons of fuel oil imports
Speaker:
on non state firms. I mean, when that news came out, there was
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no real major shift on the market initially. It'll
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be interesting to see kind of if that does affect the paper market at all,
Speaker:
if that does affect the tourism market and how people interpret that. I
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thought if anything, it would have been slightly bullish, but like I said, markets been
Speaker:
coming off. And then in today's trading, nothing
Speaker:
too crazy to report, high sulfur fuel has been
Speaker:
out of the window for a little bit because obviously all this focus hao been
Speaker:
on low sulfur. But those spreads are pushing this morning
Speaker:
and yesterday actually up about a dollar yesterday and up about a dollar this morning.
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Amazing. Well, Archie, the podcasting
Speaker:
booth is now sufficiently scented of
Speaker:
is an opportunity for you all the fans of
Speaker:
Smith Seven here. I wanted to get him something nice for
Speaker:
Christmas. So I was thinking a bottle of his favorite
Speaker:
perfume that's too expensive. And so you can help with
Speaker:
this by commenting on
Speaker:
our latest LinkedIn post. Just comment
Speaker:
hashtag the people's broker. And if we get at least ten
Speaker:
comments, I will show up with a bottle of Dior savage. No,
Speaker:
silly, your favorite broker.
Speaker:
Do it, Hewitt. I dare you. This year it's going to be a gift from
Speaker:
the frayed up community. All you have to do is follow us on LinkedIn at
Speaker:
freight up podcast and then comment hashtag the people's broker and
Speaker:
he will magically get dior sauvage. It's going to happen,
Speaker:
Archie. I feel it. It's in the future. Tell your mom to get you something.
Speaker:
Oh, wait, she's listening. Don't get him perfume this year. Get
Speaker:
him something else because I'm going to take care of the perfume. So you guys
Speaker:
have know, scramble to find something else for him. I
Speaker:
hope so. Archie, as always,
Speaker:
you've been incredible. Thank you so much.
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Welcome to your Dry Freight weekly report. So the Cape Market witnessed
Speaker:
a week of significant surge in both rate and trading
Speaker:
volumes in the futures market, which came as a surprise to many
Speaker:
market participants. In the underlying iron ore market, spot
Speaker:
prices reached an 18 month high, surpassing the
Speaker:
$135 mark due to supportive policies from the
Speaker:
Chinese government on property and credit, driving up steel demand and
Speaker:
prices. Additionally, coal demand remained robust in
Speaker:
key regions, contributing to higher rates for smaller vessels. Any
Speaker:
previous losses were recouped in the latter part of last week, with strong gains
Speaker:
observed at the start of this week in Cape size news
Speaker:
market sources said that more owners are considering ballasting towards
Speaker:
Brazil for late December lakean in anticipation the vessel
Speaker:
supply outlook in the North Atlantic could become even tighter
Speaker:
in terms of fixtures. The key C Five iron ore route West Australia to
Speaker:
China was fixed from sub $10 for early December Lake Can
Speaker:
to $11.25 for December 8 through
Speaker:
9th by the end of the week, as owners gain an advantage from tighter
Speaker:
supply in the Atlantic. Moving iron ore on the C Three route from Tuber
Speaker:
out of Qingdao was fixed much higher from the last dun level
Speaker:
to $24.50 for 20 December
Speaker:
onwards and then $27 for nine to
Speaker:
14 December. Given significant increase in
Speaker:
activity. Strong iron ore demand from China has certainly kept the
Speaker:
sentiment on the positive side for the start of this week, which was
Speaker:
a change from last Monday, where we opened with little to write home about
Speaker:
as both November and December traded lower from the onset. Post
Speaker:
index saw the prompt months trade in $400 range, with November and
Speaker:
December trading down to 19,750 and
Speaker:
16,400 respectively. Thursday saw
Speaker:
a huge spike in both volumes and rates as December
Speaker:
contracts ended up peaking at
Speaker:
$20,750 in the evening
Speaker:
session, which was up $3,150.
Speaker:
January traded up to a high of 14,500
Speaker:
plus 1800, and Q One saw an increase of
Speaker:
$1,250 with trades at
Speaker:
$11,750, a big finish to a
Speaker:
spectacular week for the James as December rallied One
Speaker:
$800 after a huge index increase of
Speaker:
5855, an increase that the market has
Speaker:
not seen for some time. January traded up to
Speaker:
15,500, and notably, Q One traded
Speaker:
12,500 a few times. December sold from
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24,000 down to sub 23,000 before finding a
Speaker:
level for all you Panamax fans out there.
Speaker:
The fundamentals have remained consistently positive, with Panamax
Speaker:
rates continuing to strengthen throughout the past week. Robust mineral
Speaker:
demand provided support for the transatlantic runs from the USCC
Speaker:
and NCSA. In the south. A tight tennant
Speaker:
list combined with the healthy cargo list contributed to the positive market
Speaker:
conditions in the Asian market. There was an emergence of more
Speaker:
Indonesian coal cargoes in the latter part of the week, resulting in
Speaker:
record volumes in the region. Significant fixtures were observed on
Speaker:
the transatlantic route, particularly with mineral cargoes via the
Speaker:
USCC redelivery to the Continent, Japan and India at the
Speaker:
levels of 31,000, 33,030,
Speaker:
6000 respectively. There was early support to start the week last
Speaker:
Monday as December shifted up to a day's high of 13
Speaker:
900, January to 11,300 and Q
Speaker:
One stayed just under 11,000, printing up to
Speaker:
10,950 in size. Fast forward to Friday
Speaker:
and prompts were the focus and saw the most gains as December
Speaker:
chased up to $16,000 and Q Two broke the
Speaker:
$12,000 resistance to print at
Speaker:
12,150, while Cal 24 traded
Speaker:
up to 12,500. The afternoon saw December retrace
Speaker:
to support at 15,150, Q One back
Speaker:
down to 11,900 and Cal 24 at
Speaker:
12,300. This Monday, december traded up
Speaker:
to 15,900 before retracing in the afternoon,
Speaker:
cal 24 traded several times between 12,450
Speaker:
and 12,700 before stalling and losing most of
Speaker:
the day's gains into the close. And last but
Speaker:
certainly not least for all you Supermax fans last
Speaker:
Monday we saw December and January trade in a range of $350
Speaker:
and up to 13,000
Speaker:
411,100,
Speaker:
respectively. Q One traded to
Speaker:
10,600 and Cal 24 up to
Speaker:
11,600. Fast forward to Friday and we
Speaker:
had quite a bullish day as services pushed up throughout the morning
Speaker:
trading session, with December and January trading up to
Speaker:
15,000 and 12,900
Speaker:
respectively, while Q One traded in size at
Speaker:
11,500. While printing up to
Speaker:
11,700, cal 24 traded up to
Speaker:
12,175. This bullish trend didn't
Speaker:
stop there as it continued this Monday with December and January
Speaker:
trading up to 15,000 and
Speaker:
13,200 respectively, while Q
Speaker:
One traded up to 12,400. While the rates sold
Speaker:
in the afternoon, the curve closed higher than Friday closing
Speaker:
levels. And for your overview on the FFA market, we had
Speaker:
an extraordinarily busy week for Dry FFAs with daily
Speaker:
volumes surpassing 20,000 lots last Thursday and
Speaker:
Friday marking the highest future volumes week
Speaker:
ever, resulting in total trading volumes reaching nearly
Speaker:
97 200 lots. By vessel
Speaker:
size. Cape Futures saw the largest volume traded, averaging
Speaker:
8290 lots changing hands per day.
Speaker:
Panamax and Supermax has also experienced an uptick in trading
Speaker:
activity with an average of 6835
Speaker:
lots and 2960 lots traded
Speaker:
daily, respectively. Options trading was comparatively
Speaker:
moderate with 3150 lots cleared in
Speaker:
Cape and 1810 lots in
Speaker:
Panamax. In terms of contract periods, the primary focus of
Speaker:
interest was on December. Q One and Cal 24 to 25
Speaker:
contracts along with decent sizes traded in Jan. 24.
Speaker:
Q two through Q 424. That's it for this
Speaker:
week's dry Freight weekly report. It's time for your Ferris update with Hao
Speaker:
pay.
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All right. Hal so, big news in the China
Speaker:
coking. Coal futures. We had an
Speaker:
8.13% increase during the past
Speaker:
two trading days. What's going on? Yeah,
Speaker:
it's quite abnormal because if we think about Ireland
Speaker:
market accrued oil like 8%, it's also abnormal.
Speaker:
But it happens sometimes in the year. It happens
Speaker:
every year, right. The craziest moment of two day or three day
Speaker:
growth, like 10%, I'm not surprised. But in
Speaker:
cocaine it's much more slower market than iron ore,
Speaker:
normally speaking. There must be something happened.
Speaker:
And yes, because some of the coal mine accidents in China in
Speaker:
November finally obtract attention from the government.
Speaker:
So the government started different groups of inspection teams
Speaker:
to supervise the production lines the miners and
Speaker:
to evaluate safety of miners. Well it doesn't say
Speaker:
anything about any impact of the Coking
Speaker:
coal or coal production but generally in the
Speaker:
market they believe that it has to some
Speaker:
direct production impact on the coke miners for
Speaker:
a long time. So that's why the futures
Speaker:
market bumped up ahead of any other products.
Speaker:
And following the futures growth we saw like there are two
Speaker:
rounds of physical coke price growth by 201
Speaker:
which account for roughly seven to 8% on the
Speaker:
physical market as well. So
Speaker:
this is pretty much the direct reason to support this growth.
Speaker:
I see. So this was a pretty
Speaker:
unprecedented step taken by the
Speaker:
government. Like no one in the market was expecting this. It sounds like
Speaker:
yes, because normally the government will send out
Speaker:
files and documents and talk to the miners leaders, probably
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start inspections on the accidental minor. But instead
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of the whole province and the and can take up to
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from seven days to a month. But this time the and they
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expected the supervision probably take like three months to six months.
Speaker:
So that's a lot so that's no one expected
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before. So I think this is something it's totally out
Speaker:
of expectation of the market. So then do you think this
Speaker:
uptick will impact the Fob Australia Coking coal? In the long
Speaker:
run? The answer would be quite limited
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and first of all we have to say it has an impact over the
Speaker:
Fob market because all the coal market is connecting the Asian
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Pacific area. It's all SeaWorld and Coking coal but I think
Speaker:
it's limited. Well first of all, the tightened supply in
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China's domestic cocaine coal result into an
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import demand in November. So as Fob
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Australia used to have 67 premium over
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CFR China in early November but now it is only
Speaker:
$2. So which explained that China
Speaker:
import tentatively play a key role in the market of November
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in the seaborne market coking co well in addition from
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mid November India buyers are returning from holiday and
Speaker:
looking for restocking. The impact has already
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linked to the seaborne market and probably seaborne market hao already
Speaker:
revealed what happened in China like a month before. So I think the
Speaker:
afterall impact and the after news
Speaker:
impact will be limited compared with last month.
Speaker:
And however, the steel margin in China and most areas in
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Asia was quite negative. Thus if Fob went too
Speaker:
high they will look for alternatives and even think about
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control production. If think about market share wise,
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I think pricing will not be too
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aggressive because the major Australian miners are listed the
Speaker:
companies they have to think about the market share
Speaker:
versus the earning margin at a time. In particular for
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year end they need to optimize a financial balance
Speaker:
sheet and schedule income flows and they need to see numbers
Speaker:
like shipments target approach enriched instead of
Speaker:
selling into a high price and in particular
Speaker:
before because next month is the last month of the year and which
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should consider some contributors to help with those
Speaker:
annual reports and the stock markets and investment
Speaker:
markets. So I'm trying to say is I think
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it's better for miners to grab more shipments and sell more
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cargoes instead of direct raise price for the Fob
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market. So I think the impact from China's side
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for this time will be quite limited. Okay but that
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is for this time. So that means that we'll need another update
Speaker:
next week to see what else is going on in the yeah and see what
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happens. Exactly. We need to follow this.
Speaker:
Thank you so much hao and we know that you will
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keep your eagle eyes on this and keep us updated for next
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week. Thank you. Well
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you did it. You made it to the end of an action packed
Speaker:
episode and I congratulate you for that. But this
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week instead of begging you to follow us on Apple podcasts spotify or
Speaker:
wherever you get your podcasts from or pleading with you to go to
Speaker:
freightuppodcast.com to leave us a review or comment, I'd
Speaker:
instead like to pay tribute to the investment guru and business
Speaker:
giant Charlie Munger who passed this week. With that
Speaker:
said, until next time amigos freight
Speaker:
up.
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