With freight rates twice as high as they were this time last year. Our

technical analyst, Ed Hutton, has been looking into some interesting

spreads and other things he's noticed in the dry freight market.

Also, battery metals are the commodity of the future.

So we're here to discuss why the 80% drop since

2022 shouldn't deter you. All this and more on freight

up. Freight up, you.

Hello and welcome to freight up. My name is Fernanda and I'll be your host

as we navigate the seas of freight and commodities. Today's

episode is quite and action packed. One we have Ed

Hutton giving us our technical report and a voice

you haven't heard before. Davide. Davide is

joining me in the studio today. How are you doing, Davide? I'm fine,

Fernanda. How are you doing? Really well. Are you

having a pretty good year of the dragon? Oh, yes, it's going quite

well so far. That's wonderful to hear. And in spite of the

huge holiday, we do have quite a bit of macro news for

our audience, don't we? David Fernando? Speaking of China, the

economy is actually experiencing the longest deflationary

period since 2008. And of course, the authorities are

concerned about the negative effects of the falling

prices. The real estate sector seems to be the main culprit of

this deflationary period. The PBOC, which is the people

banks of China, has reduced its benchmark five

year loan prime rate by 25 basis points.

And it's trying to provide a little bit of support to a sector

which is absolutely paramount to the country's economy. The

consumer confidence in China is actually quite low. The last reading is

actually standing at 86 7.60 points

in December, which is far from the all time high of

127 points, which was recorded in

February 2021. And in terms of China, one of

the big commodities that always comes up in the conversation

is iron ore. So how's that looking, David? Well,

actually, iron ore has hit the three months low after the

holiday and for the year of the dragon, of course, like lots of

people were on holidays, the experts are actually expressing

concerns regarding the level of demand that China could have

in the foreseeable future. Obviously, China is

consuming something around like, 90% of the

world iron ore supply, so the health of the

chinese economy will have a major impact on the future prices.

That, and specifically the housing market, is

something that plays a huge role in that. But mining, on

the other hand, is also something that we need to keep

track of. So do you have any developments there?

Yeah. So, recently, Rio Tinto profits have dropped

12% on the back of the weaker commodity prices overall.

But the company has also unveiled a 20 billion

us dollar investment project for iron ore mining

in the Simondu mountains in southeastern

guinea. And in a rarer occurrence

on this podcast, David, we're going to be talking about

uranium. Yeah, that's true. So after the lows, we have

the highs. So the uranium has recently hit the

16 years high and has been backed by the

investment banking heavyweights Goldman Sachs and Maguire.

As countries are increasingly looking at the nuclear energy

as a source that should help them in reducing the carbon

emission, we will see if the price will continue to

rise or not. And as always, you have frayed up to keep you up

to date on these and all macro movements.

So on the theme of macro, Davide, what have the general market

movements look like this week? We're looking at the main

indexes here, and of course, like the data Tuesday to Tuesday. So starting

on Tuesday the 13th and then compared to Tuesday the

20th, so on the cap size five tc, we

have $855 gain, which is

equal to 4.3%. On the Panamax five tc we

have interesting increase, which was from

$13,950 a day to

15,352 a day, which is equal to a

21.1% increase. On the supermax ten

tc we got from eleven and $515 a

day to 12,416 a day,

0.6%. On the handy size, we have a decrease

of 1.72%, equal to $179.

And then we spoke about iron ore. So

the decrease we have seen has been of 725,

which is equal to 2.9%. It went down

from $129 to 121 and

$0.95. On the sync, 380, we went

from 434 and $23 to 428

and 70, which is a decrease of

5.6%. Sync 0.5 from

614,

which is a very, very small increase of 0.7%. And on

the US HRC, we have gone from

$933 on the 13 February to

the $925 on the 20

February, which is a decrease of

$8. So,

David, let's next take a look at a key future

commodity market, that being battery metals.

We've recently published a short article on this market and recent

price movements and prospects for the future. If you'd like to view

that article, you can do so on fis live now, picking

up on some of the key points from that article. What have been the main

drivers behind this move and what do we expect for the near

future? Fernanda, you've mentioned that there's been drop

in prices. So yes, we had lithium prices, they've dropped

over 80%. And on the other side, Nikel and cobalt

have gone down also like by 40%. So we have seen a

general and overall dip in the market. That's the first one.

Also the big policy announcements, all the

big drivers that in the world, they had the time to filter through the

economy and through the markets now. So in the US we had the American

Inflation Reduction act. And also in China we had

a lot of steady investments in the raw

material processing capacity for battery metals. Speaking also

like of policy actions, governments have in general

softened their approach on the environmental policy

as a whole. And they've created a sort of like

lackluster environment of incentives for

consumers if they want to purchase electric vehicles. There's also been

like a watering down of the previously

strong actions on the environment. If I can

make one example, there's the renew interest in

nuclear energy. Hence the mention to uranium, which

instead of, rather than pushing relentlessly on renewables, we're

finding this element here. And also, instead of pushing also on

the undergrid level, battery storage in the physical market, we've

also seen an oversupply that is in comparison to the

current demand. All of these issues bundled together, I would say

they've contributed to depressed the prices.

My opinion it will be to just look at that of more than a lull

rather than the endpoint for the battery metals

market. I'd say it's definitely a compelling case to do so.

David, also looking at volume

growth in the derivative market, it's been impressive since

various battery metal contracts have been launched. How have

these volumes performed so far this year? What do we expect

going forward as well? I think that impressive is the right word

for volume. Just to mention a few key figures on the CME.

Cobalt. The 2022 market volume was

15,966. And the market volume for this

year is equal to 25,426, which is

an increase of like 59%. But I would say like this is

a drop in the ocean in comparison to what we're seeing in the lithium market.

We're going from 426 to

17,355. So we're talking about

a percentage increase of 3974%,

which is something that you don't really see every day. So there

is the growing importance of the physical markets

that has also enabled the launch of the derivatives on debt. So we

have now contracts that are being offered on the CME, on the

SGX and the LME exchanges. And also like

there's contracts for now, apologize if I'm mispronouncing

them cobalt hydroxide, lithium hydroxide, lithium carbonate,

and molybdenum oxide. So on the

derivative battery volumes, they have, I would say like a pretty

healthy volume increase since their respective launches. FIS as

a company has been like one of the key drivers in the launch of these

contracts, and is now commanding a very strong

market share. So as you can see from the volume that we have

seen in the market over the last few years, we have seen almost like a

4000% increase in the volumes for the

CME lithium contracts alone. So it's actually quite promising.

And we will think that the future will go. It will be

better and better. It will go strength to strength.

So it looks like there's a really exciting future

growth prospect for the physical demand of battery metals.

Some 3 million tons for lithium carbonate equivalent

by 2040. That must make you excited about the

future. Yeah, I think that the prospects are really exciting.

So, just to give you some estimates, these are

coming from the European Commission. Their forecast Hao aided like the

demand for the rare earth metals should increase sixfold

by 2037 fold 2050.

This is just like for the rare earth metals, but for

lithium is supposed to increase fis twelve fold

by 2030 and 21 fold by 2050.

So it's a very big rise. Two of the top

energy transition investors have also recently unveiled in

Davos in Switzerland, 500 million euro fund,

which will be focusing just on battery metals, which

will include, of course, like lithium, nickel, a cobalt. It

should also reduce Europe's reliance

on supply that is coming from abroad. Speaking

of Europe, also, we have several countries who have already

announced or already opened new gigafactories.

We have Germany, which is the first one. It's the country

which has the lion's share. But the overall number of factories should

increase drastically by 2050. In the US

instead. The Inflation Reduction act, together with other incentives, is

also like contributing, and which should end up like bringing

$135,000,000,000 in investments

in the american electric vehicle, and for the

overall critical mineral sourcing and processing for zero

emission vehicle mandates. We have been seeing, like the UK,

that is going to ban the sale of new combustion

engine by 2030. And in

2035, this will also happen in Canada and EU.

This will of course contribute to drive up the demand for these

key materials. Just to give you the last estimate, again, also

coming from the EU, they're predicting a global

demand increase for batteries of like 14 times by

2030, if we compare it to levels of 2019.

So lithium alone is predicted to

increase like by a good solid 30%.

Year on year. So there's clearly a lot of

ambitions across the pond, both in Europe and the Americas, and

then they should lead to an increase in the production of batteries as well as

the demand for the finished products in batteries and the

electrical vehicles. It's a really exciting market. We're really

looking forward, and we're really hoping that this will also contribute to a

cleaner environment. Phenomenal. And as always,

if you have any questions on this

article or anything in the battery metals world, Anna

Chadwick and Lukewind at FIS are always there to answer your

questions. Davide, thank you so much for joining us.

Same time next week? Yeah, why not? It's been a

lot of fun.

And next to our podcast, we have Ed Upton, who's our senior

technical analyst, and he's going to talk about our latest

analysis, which, if you're interested and if you want to read it, is available

on the FIS Live app. Ed, thank you very

much for joining this week. So let's

have first a look at our dry freight market. So what

we have seen is that the market has been less volatile this

week across the board. We've seen that it's actually

been quite flat in comparison to the recent months

in terms of indexes. Just to give you a little bit

of context and some key figures, we have seen that, like the

Cape size five TC has gone down

2.7% in comparison to week on week.

The Panamax five TC Hao gone up like 10%

$1,000 402, the supermax ten

TC is going up 7.8% and the handy

size is going up 5.2%.

Now that with our indexes out of the way, I like

to ask you a couple of questions about the article. You

have mentioned that there hao been a contrast between, on one end, a bullish

seasonality, while the Panamax index versus the rolling front

month ratio has entered instead like a support area.

So, can you tell us what happened last time that we saw a similar situation?

It's just an observation that we made when looking at the historical

spreads, or should we say the ratio. We're entering a period in

the Panamax and the supermax where the seasonality generally starts

turning bullish at this time of year based on three year averages, three

year highs and three years lows. What I was observing was the fact

that the ratio at the time of the article was getting very close to

going sub zero points leverage. What makes this interesting is

because when we were looking at the carry of the futures on the rolling

front month over the indexes, it's like $3,000,

which would suggest that the futures look a little bit overexposed,

which from a technical perspective, although may be the case,

what the ratio has actually done on previous occasions

that we've been got close to this sub 70 level, or sub

70 is we've actually seen, it's the index that has been

the mover rather than the futures correcting. So it actually

can be a bullish signal for the physical. So we just wanted to highlight the

fact that although when we looked at the future and we're like, okay,

they look really overexposed and they aren't you of this pullback, be a little

bit cautious because we're not necessarily looking at a pullback that will be

three, $4,000 because we had an expectancy that the index would start

moving. And to be fair, since we've actually sent those

reports out, as you can see, we have seen these

7810 percent moves in the indexes already. So they are already starting to

shift to the upside, where the futures have started to consolidate to maybe

correct a tiny bit this morning, but they've been fairly stable for the

last ten days, partly because of the

chinese new year, but I suspect partly because you can't buy the

futures because the carry is too big. But the sentiment is bullish

enough, the seasonality is bullish enough that it's the index and the physical that's starting

to shift. So basically you're telling that the dragon is still

casting a shadow on the markets as well. And also, I like to follow

up with another question that I had by reading your article. I mean,

you have said that on average, like capes tend to move faster than

panamaxes and also tend to correct faster. So in these

regards, what can we expect going forward? I mean, the

capes is a very interesting sector at the moment, because if you look at the

indexes, the valuation at the moment is like 20,000, just under

the three year average values for this time of year. At 10,000, we're double the

price that we normally are. And this is throwing a little few things out of

line because there's obviously a very bullish sentiment across the market because as a

general rule that we would look, the markets are all fairly well

supported. The indexes are now starting to shift with the futures, but

the futures are holding in these patterns that suggest that

there's an overall bullish sentiment across market. Which makes sense,

obviously. I mean, I know I'm a technical analysis, but if you look at

what's going on in the Red Sea, the Panama Canal, then obviously

come miles is a big factor here. So there's an expectancy of longer term. The

market is going to push up this year, but this has blown out

a lot of the spreads on the front. So where we would normally look at

the q two, q three spread, it's trading in the case, it's

trading near flat. This spread is now

$4,000 above average values. Whilst at the

same time, you've got the same pattern with the q two versus three four spread.

Now, if this market does enter a corrective

phase, even if the longer term trend is bullish

and we enter a corrective phase, they can be quite aggressive. The moves in

capes fis, the most volatile of the sectors, the first thing that's going to come

under pressure, in my opinion, will be these spreads. Because of their overexposure. They're

above three year average values, three year average highs, to be honest,

Smith, you. They're above five year seven year. So the spreads are looking

overexposed. That involves the q two, but

there's a bit of an elephant in the room in the capes, because if you

look at the q three versus the q four spread, that's actually

due to turn bullish and is below seasonality values.

Although everything is up and above values, it looks like it's the q two and

the q four that have made this more general shift

higher or more aggressive shift higher than the q three, which,

as anyone that works in shipping will know, q three is generally the most bullish

quarter of the year. So there's a bit of an anomaly in the market.

And I look at this and just think, okay, if there is a

correction in the market, the Q two, and to be fair, the Q four probably

look a little bit overexposed. And it does make me wonder if people

should maybe be selling the wings there and buying the q three and selling the

q two and the q four against it, and just looking for, as a short

term play, maybe looking for the markets to rebalance and recorrect.

And just these spreads kind of narrow in the q two versus q three. And

possibly we'll see the q three, Q four spread going bid.

So you'll get the double advantage. If you traded the

butterfly there, you'd be basically selling Q two, buying twice

the Q three, and selling the Q four. I just think that's an

interesting factor to see in the market. We've seen in the Panamax

supermax breads, we've seen them blow out a little bit. They've kind of rebalanced more.

The James haven't so much. So I just think

that there's some interesting stuff to watch in that space, because the

Q three on its own is suggesting, and I

look at the Q three rather than the Q two right now, because the Q

two rolls in a few weeks. If you look at the Q three

spread, just purely on the psychological wave analysis that we use for

the Elliott wave, I think there is a larger ball cycle still in play. So

I don't necessarily think that downside moves are going to

signal the end of this ball run that we've been seeing or this ball holding

pattern we've been seeing. I just feel that there needs to be a rebalance in

the market, and I think these spreads are where the market looks more overexposed

and probably a safer place to be in, because obviously,

if you don't get any kind of mean reversion that we

perhaps need, you could be a little bit overexposed by being

vanilla short rather than having the spread on.

To ask you the final question in conclusion, is there something that

our listeners should look at? I don't know, for instance, like the

spreads? What do you think on that? Just give us one, your view, one

sentence. Well, one sentence. I mean, I just think you need to be looking

at anything that involves either selling the Q two or buying the Q three. Right

now, within the spread, I do think they all need to correct a little bit.

But if you're going to be long a spread, then I'd be long Q three,

Q four. If I was short, I'd be short Q two, Q three. Well, Ed,

that's been slightly more than one sentence, but I think that

it's good enough. Thank you very much, ladies and gentlemen. This was Ed

Hutton, our senior technical analyst. Thank you very much,

Deborah. Well, that's it for this time. Thank you so much for

joining us. And if you haven't already, make sure to hit that

subscribe button wherever you get your podcasts from

until next time. So, because you

insist, we will see you.