Fernanda [00:00:00]:
Ben Klang joins us to discuss the 34% week on week increase in the Cape size index and how pay delves into why, after a three month low, iron ore experts are expressing concerns and why we might need to expect more bad news coming from Beijing. All this and more on freight up.

VO [00:00:17]:
Freight up.

Fernanda [00:00:21]:
Hello and welcome back to freight up. My name is Fernanda and I'll be your host as we navigate the seas of freight and commodities today. I'm joined by Davide.

Davide [00:00:29]:
Hi Fernanda, glad to be back. So this week we have our usual roundup of the latest commodity news. And then, now that the chinese New Year holidays have all finished and the iron ore market has lumped towards the $100 level hao pay, our analyst from the Shanghai office will give us some insight on the current negative sentiment which is surrounding this key ferrous product. On dry freight, we explore the reasons why the cave market has been the week on week mover of note with Ben Klang, our colleague from the Copenhagen office. And last but not least on the oil markets, we have Archie Smith that is giving us his usual update.

Fernanda [00:01:10]:
Well, let's get to it then.

Davide [00:01:12]:
So let's have a quick look at this week's commodity news. So the European Central bank president Christine Lagarde spoke at the European Parliament plenary debate on the ECB annual report. The head of the ECB expects the eurozone inflation to slow further as the impact of past upward shocks fades and tight financing conditions will help to push down inflation. Speaking of inflation, the annual rate in Japan fell to 2.2% in January, which is down from 2.6% in the prior month. This is the lowest since March 2022. Us durable goods orders month on month hit a -6.1% in January, which is more than market expectations of a 4.5% fall, which follows also 0.3% in December. Also, this is the most substantial monthly decline in durable goods order since April 2020.

Fernanda [00:02:07]:
And in other macro news, Cotter is set to increase its energy exports. So Doha has announced a multibillion dollar investment in LNG, which should bring production to 124,000,000 tons by 2030, an increase of 85% to current levels. More than half of uk retailers and exporters have been affected by the disruption to Red Sea trade from houthi rebel attacks on cargo ships, according to a survey by the British Chamber of Commerce.

Davide [00:02:37]:
The US Department of Treasury has imposed sanctions on Russia's largest shipping company, called Sovcomflot, last Friday. The firm has also been targeted by the Office of Foreign Asset Control and has been sanctioned by Australia, Canada, New Zealand, the United Kingdom, and is also under certain EU restrictions. Lastly, VaL is expecting to reach annual iron ore production of 340 to 360,000,000 tons by 2026, as it is continuing its expansion projects following recent stabilization. So let's have a quick look at the market movements of the week, Tuesday to Tuesday. Cape size five tc we have seen an increase of 33.8%, equal to $6,756. Panamax five tc from 1552 a day to 14 225 a day equals to -7.3% decrease week on week. Supermax ten tc to $12,416 a day to $13,416 a day, equal to $1,000, up 8%. Hennessy 70 c $10,732 a day to $11,997 a day and increase of 11.8%.

Davide [00:03:53]:
Looking at the iron ore market, I know 62% went down 3% $3.75 Sync 380 from $428.70 metric don to $426.66 per metric don -5% single 5614 65 to 616 85 plus 0.4%. And on the steel market, us hot ross coil is going from equal to $65.

Fernanda [00:04:35]:
Let's talk fuel oil with the people's broker. All right, Archie, so it's the middle of ie week, you're about halfway through, and you're still.

Hao [00:04:44]:
Yes, yes, I think I'm managing all right. Ask me the same question Friday morning. Might have a different answer.

Fernanda [00:04:50]:
It might be a bit different. We'll see. Bloomberg might do you in, huh?

Ben [00:04:54]:
Yeah. Well, I'll try and catch the end of the conference. Obviously, Luke's traveling, Sam's out, so I've got to be there to cover the desk, and then I'll certainly be at the drinks and refreshments after.

Fernanda [00:05:04]:
Fantastic. So operating on, like 10% liver efficiency, you still managed to write your weekly oil report, which is an impressive yesterday. And there's some interesting stuff in there. So I guess the first thing that really stands out is what's going on with Brent, I guess. What's not going on with Brent.

Hao [00:05:26]:
Yeah, it's been pretty range bound as it has been for the majority of the year, and it's just a case of bullish and bearish factors really tugging against each other at the moment. Kind of on the upside, you've got ongoing Hamas attacks. I mean, what we're seeing is if an attack actually, and I-E-A missile, is hitting a ship, we normally do see kind of little spike in the price, and then obviously more recently announced in the last couple of days that OPEC are looking to extend their production cuts certainly into q two and potentially into the remainder of the year. Again, that's kind of another upside factor. It's the same kind of narrative. On the downside, you've got poor demand outlook, especially from China. I mean, chinese demand really dictates these markets, China and us mainly. But China is the most important one and their oil demand is forecasted to slow down this year just to 1% growth, which is about 15 million barrels per day, I believe.

Ben [00:06:28]:
And when you've got these factors on one side and these factors on the other side, Brent's really kind of stuck between the two. So that's why we've seen such a kind of flat Brent level this year so far. It'll take a major incident to break out of those range levels as it stands.

Fernanda [00:06:47]:
So does that mean that you expect this kind of trend to continue on into the future, or what are your thoughts on that?

Archie [00:06:54]:
Looking at the factors I've just discussed, yes, we can probably expect the brents remain fairly range. Know a lot of people kind of are uptalking the conflict in the Middle east, the conflict in the Middle east that's happening. Freight now isn't really an oil problem. Israel, Gaza, neither are big kind of players in oil or have much influence on the oil market. Yes, obviously the Hamas bombings, they're a hindrance to oil, but real kind of supply side factors are yet to be changed. Obviously there's a lot of ships just going a longer route around. Yes, logistically it's a bit tricky, but the oil is still getting where it needs to be.

Hao [00:07:37]:
Right.

Ben [00:07:37]:
So I think certainly for the prompt future, I can see it remaining like this. But the only things that can really change, which no one can sort of predict, is, for example, one of these big players, these big forces, gets more involved in the Middle east conflict. If Iran do step in or the US does take more of a stance, then that's when we'll really see a change. But this conflict's been going on, what, since October? And that's yet to happen. So I think that's my view anyway.

Fernanda [00:08:11]:
We have a fan of yours who's joining us in the booth today, and that's Davide, who has a few questions of his own.

VO [00:08:18]:
I'm a fan of his. I'm a fan of his.

Davide [00:08:20]:
Thank you very much, Fernanda. Hi, Archie. Thank you very much. Big fan as well. You mentioned a very interesting, like, as someone with an international relations background, I'm looking also at the effects of the geopolitical tensions in the oil market. I find them fascinating. So I was reading the news and it seems that the consensus for the OPEC plus watches, it seems that, as you mentioned, the cuts were going to continue probably in the next quarter. But like you mentioned in your latest report, that the supply is probably going to be balanced by the US.

Davide [00:08:58]:
So what's your opinion? How do you see the market evolving in this regard?

Hao [00:09:04]:
I think the OPEC cuts, if we look in recent history, so kind of the second half of 2023, when these cuts were getting announced, more cuts were getting rolled out, et cetera, et cetera. Obviously with OPEC's aim to be to support price, they didn't really work. Market kind of reacted upon the news and then within a day we saw the market hao rebalanced. So I think yesterday crude rose about a dollar on the back of the further OPEC cuts news. But I just don't think it's enough, really, and especially as you mentioned, against rampant us production at the minute. I know they slowed down a little bit at the beginning of the year because there was a lot of extreme cold weather, I think, in Dakota and around there, and that kind of hindered a lot of production. But I mean, looking at the end of last year, December, they were at kind of record levels that any country has ever produced. I actually read at the end of last year that the US was exporting the same amount of oil and distillates and condensates that Russia or Saudi Arabia were actually producing.

Ben [00:10:12]:
So yes, I think us obviously have stepped up. So it's best. Yeah, obviously Russia used to be a major supplier for Europe, and amid the sanctions, us have stepped up majorly. There would supply balance out. I mean, it might even go the other way. One might argue investment banks have been reducing their oil forecasts from $100 a barrel, $110 a barrel for 2024, down some, down to kind of the $80 per barrel mark now. Yeah, it'd be and interesting one to see how that plays out.

Davide [00:10:44]:
Okay, actually that's quite interesting. Now, I want to ask you a question, which is also like a nice way to introduce our latest article that we've published on LinkedIn. And then our listeners, if they don't only want to listen, but they also want to read something interesting, they should go back to our LinkedIn page on freight investor services and then have a look at the latest article that talks about global spare capacity. Now, I didn't know what it meant, but it is the volume of production that can be initiated within 30 days and sustained for a minimum of 90 days. So this is what global spare capacity is. 75% of this spare capacity is concentrated in few countries, which are Saudi Arabia, Kuwait and United Arab Emirates. You have mentioned the crisis in the Red Sea, the conflict in the Middle east. More in general.

Davide [00:11:34]:
My question still on the international relations side, is the market pricing the geopolitical risk appropriately, in your opinion, or not?

Ben [00:11:42]:
It's a tough one. I mean, I still stand by the fact that I think people are up talking the Middle east situation too much. I did read Miguel's article, which he kind of summarized, saying that crude is being traded at arguably a discount. I'm actually going to go against him. I think it's maybe too expensive. $80, which is roughly where it is now. $80 a barrel is not cheap crude. The only reason people think it's cheap crude is because of recent history, when we hit, what, 139 days after Putin invaded Russia.

VO [00:12:20]:
Because that's kind of so recent. People see $80 a barrel think, oh, it's just cheap.

Hao [00:12:24]:
It's cheap.

Archie [00:12:25]:
I don't think it's cheap. If we was sitting around kind of 50, $60 pei barrel, then, yes, I think you might have that argument. So I certainly do think in the crude futures market that the geopolitical risk, it is priced in to the sense that when things happen, we're not seeing much change in price. If a ship is struck, we do see it tick up a little bit, but nothing worth writing home about. So is it priced in?

Fernanda [00:12:52]:
Yes.

Archie [00:12:52]:
Is it priced in correctly? I think it's all kind of hot air. I think people talk it up more than it actually fis. I'll go back to what I said earlier, israeli conflict and what's going on in the Red Sea isn't much of an oil problem like what Russia to Ukraine was, Russia being the main supplier of oil to Europe, and then all of that getting cut away, that's an oil problem.

Davide [00:13:15]:
Okay.

VO [00:13:15]:
That's my opinion.

Davide [00:13:16]:
Thank you very much, Archie.

Fernanda [00:13:17]:
So there you go. Archie, thank you so much. You're amazing, as always, and a gift to the people.

VO [00:13:26]:
Thank you very much. It's been amazing being back on with two brilliant co hosts now as well. So thank you very much.

Davide [00:13:33]:
And next on the podcast, we delve a little bit deeper on what's happening into the dry freight markets and is joining us, our senior business development executive from the Copenhagen office, Ben Klang. Ben, how are you?

Ben [00:13:46]:
I'm very well, thank you.

Davide [00:13:48]:
So thanks again for joining us. As we have outlined in the index section and the beginning of this episode, we have seen a general increase across most of the dry freight markets.

Ben [00:13:59]:
Yes, exactly, and this was especially true in the Cape size market, which rallied last Wednesday amid significant activities in both basins with FFA rates trading in higher and large volumes. The positive sentiment persisted throughout the rest of the week despite James iron ore shipments falling by 17.8% to 23.2 million tons due to the decreased volume destined for China and despite the weekly cargo volumes being in negative territory, coal shipments on the Cape vessels provided good support, having jumped to nearly 8 million tons following the growing shipments over the past three weeks. And in terms of fixture, all three majors were actively seeking iron ore cargoes in the Pacific. The key c five iron ore route West Australia to China in the first half of the week was fixed at 930 to 965 for mid March loading dates, and as the week progressed c five gained further tractions amid a growing cargo list and was paid at 1035 and then at 1150 for freight to 10 March and moreover, more vessels departed from North China since previous adverse weather conditions forced some ports closures. Additionally, market participants kept a close eye on the development of the cyclone Lincoln in Western Australia. Another iron ore cargo from TRMt from Qiandao was fixed at $8 for the second to 4 March. Sentiments in the North Atlantic also showed positivity, with Titanic reported in South Brazil and West Africa and then interest on the c three routes tubero to Quindao was evident from midweek, with fixtures from late March. Loading dates fixed higher from $24 for 14th to 20 March to 25, $75 for the 20th to the 30 March, and then in the FFA Cape size market last Monday opened strong.

Ben [00:16:11]:
Yet as the afternoon approached, market quieted down, leaving us at opening levels along the curve. Meanwhile, c five saw good size trading with 775 kt in total trading. The market opening on Tuesday with March trading at 21,750 a number of times and then at 21,850. Aggressive selling followed on these rates, selling at 21 500. March being sold down to as low as 20,000 and a quarter and a bullish day on Wednesday as March and April traded up to 23,000 and then 25,750, while Q two and Q three both reached $26,000. An extraordinary day on capes on Thursday as Q two traded up to 26,500 before most of Europe woke up, March got paid up to a high of 25,750. Q three trade at 27,000 and a quarter. Q four traded up to 26,750 and reached up to $27,000.

Ben [00:17:23]:
Well, Friday saw mods trade up to $28,000 while Q three traded up to 29,250. And then Cape sold off on Monday after a rally last week. March sold down to as low as $25,000 and Q two down to 27,000 and a quarter.

Davide [00:17:45]:
And speaking of volume, it seems that this week has also been very good, right?

Ben [00:17:50]:
Yes, it has. The FFA market last week so good volume. We had the highest trading volumes of the year with a total trading volume of 92,800 lots. And among vessel size, Cape futures dominated the mystery of this action. Smith over 10,000 lots traded per day last Thursday and Friday, averaging 8200 lots changing hands daily. Panamax closely followed with approximately 4000 freight. Hundred and 70 lots traded daily while Supermax saw 1740 lots traded option. Trading volume also set a new record with 630 lots cleared in capes and 5920 lots in Panamax.

Ben [00:18:43]:
And there was also dies in trading activity observed in the voyage routes throughout last week with 671 million tons of c five and 200 kts of c three cleared, with the main interest focusing on March and Q four contracts.

Davide [00:19:03]:
Thank you very much for the roundup of the markets, Ben. So if anyone from Copenhagen or the wider EU, do you have any other questions about our markets or our service offering, Ben is your man and then you can reach him at benk@freightinvestor.com. Ben Klang, ladies and gentlemen, thank you very much.

Ben [00:19:22]:
Thank you very much.

Fernanda [00:19:25]:
Now it's time to catch up on all your ferris complex news with Hao Pei. How was Chinese New Year?

Hao [00:19:32]:
It was really nice. We have a lot of fun with the firecrackers and fireworks, but it was also exhaust. I feel exhausted as well.

Fernanda [00:19:43]:
What can you tell us about what's been going on since the break for Chinese new year?

Hao [00:19:48]:
In short, the downstream recovery on construction sites after Chinese New year was slower compared to the past three years. If we look at the average numbers at the same time, steel mills were very cautious buying raw materials because of the steel making loss at negative 100 to 150 yuan per ton. So there were different stories saying big buyers previously were starting to taking out some long position. But they are rumors. We're not supposed to say who fis doing that, but it's all over the market and port inventories grow like 4.56 million tons in a week during chinese new year, which is amazing number. Well, let me tell you about the average number. Fis only about 1 million to one and a half million tons on average during that period. But it's like four to five times bigger this year it's hitting a historical record and in addition that is during no frozen impact on ports the port is running normal operations, the evacuation logistics are all good and the shipment during February, the entire February is really high.

Hao [00:21:03]:
In particular if we look into the Australia shipment during February compared with the last couple of years because usually in February we have a lot of impacts from either port side or cyclones or raining everything. None of them show up this year February so which potentially fis saying higher arrivals by late February we'll see a lot of arrivals of iris nor in late February as well as in early March. If we trace back on the previous we did or the previous report in January and February I reckon that the only conclusion we have is that iron ore is overvalued. So for commodities overvalued doesn't always mean a timing of short, but it should come up several weeks after wild time. It must go down to correct its overvalued portion. And in other words it's easier for us to see extreme conditions if the commodity is high value for several months and as a high volatility product in particular for the current three years, iron ore has a higher volume than oil. So it is unusual to see a fast grow and drop as a result. Other commodities on value wise looked more attractive compared to iron ore.

Hao [00:22:23]:
So I think those are all reasons that contribute to a sharp drop for iron ore market from my point of view.

Fernanda [00:22:32]:
So what factors are you paying extra close attention to in terms of a more long term prospect or in terms of a more long term vision?

Hao [00:22:43]:
Kyle I think market participants started to get, to be honest, started to get less sensitive to macro stimulus or any bad news since there are too many of it during the past four or let's say at least past three months. There are lots of stimuluses and at the same time a lot of bad news coming together. So Irene used to be derived from the macro news up and down or at a point in time it's going in line with equities. But I think it's time for iron ore to leave the macro markets for a few weeks and going back to the fundamental side. If we talk about macro side all the news and stimulus, I think most of the markets are still expecting more of details hit the ground on the housing markets and the two biggest events are one of is the formic meeting in us. So it's the first monetary meeting over the year to see if there's any expectation change and then they will take a different look at the valuation of iron ore or other dollar set of commodities. The other one probably more important than iron ore market fis. The two sessions, the political bureau in China coming in the early of March, and the market participants would like to see if there's any big change on the housing market.

Hao [00:24:12]:
And I think in long run, I think the recovery of downstream of iron ore is not easy to go back to the glories in 2021 or 2022 or even last year, because a clear picture of house market in China is sizing down. Even some of the house developers or some of the local government is saying that it's trying to persuade that they're using better qualities on the new buildings and infrastructures. But that doesn't mean she will use more of them. The size, the quantity is going down. I think that's a long trend. And at the same time, the boom of India steel making would take at least five years or even eight years to catch up with the size of China. Vietnam is facing energy risk, so it's quite difficult for them to pick up a high projection during 2024. So in long run, let's say if China cut like 5% of capacity in steel making, no one is able to fill this big hole, which could result in the correction on the iron ore valuation in long run.

Hao [00:25:27]:
So I guess in long run, I think the $116 for iron ore is still way overvalued. I think I'm expecting good news from Beijing in March, but I'm also not convincing that even good news coming down, a lot of strategies coming out. I still think the iron ore market will be in average. The average amount of iron ore price should be lower than the past three years.

Fernanda [00:25:59]:
Well, that's it for us this week. Thank you so much for joining us. And if you haven't already, make sure to subscribe wherever you get your podcasts from. Also, did you know that we have a LinkedIn page? If you didn't, then make sure to give us a follow and get signed up for our app fis live to make sure that you never miss any freight and commodity analysis from FIS. Thanks again for joining, and we'll see you on the next episode of Freight up.