Welcome back to "Freight Up," your go-to podcast for insights into the major freight and bulk commodity markets from FIS. I'm your host, Jess.
We'll start with our regular guest Ben Klang providing the latest updates on the dry freight markets across all vessel segments.
Ben will discuss recent trends, index movements, and key drivers shaping the freight landscape.
Next, we have a special segment focusing on the US steel industry with Martin Vera, a senior commodities broker, and Catherine Wang, a steel desk broker, joining us from our US offices.
They'll share insights on US HRC futures, the unique aspects of the US steel market, current volatility, and future outlooks.
We'll also touch on the impact of Mexican steel imports and the state of US domestic raw steel production.
Rounding out the episode, Hao Pei is back to give us the latest on ferrous products, including a closer look at recent developments in the iron ore and coking coal markets.
Listen in for an informative discussion on freight, steel, and ferrous commodities, as we navigate the complexities and opportunities in these dynamic markets.
You won't want to miss it!
00:00 Jess with the freight market update.
04:22 Rates hit high, trading mostly range-bound.
10:33 US steel industry: 80 million tons yearly, electric arc furnaces dominant.
12:15 Implied volatility on front end contracts at 25%.
16:36 Difficulty in steel production led to price spikes.
19:09 US steel producers foresee price rebound in 2024.
22:21 Iron ore correction, train impact, China equities.
This podcast uses the following third-party services for analysis:
Podder - https://www.podderapp.com/privacy-policy
00:00:04
Hello and welcome back to freight up. I'm Jess, your host for today, and we
00:00:07
will be exploring the major freight and bulk commodity markets. We have some of
00:00:11
our usual guests, such as Ben Clang on the freight update, and we'll also be
00:00:15
joined by Katherine Wang and Martin Vera from the us office to discuss
00:00:18
us steel and scrap, an area we haven't covered before on this
00:00:22
podcast. Finally, we have Halpay back to provide us the
00:00:25
latest updates in Ferris. Before we bring on our guests, let's take a quick look
00:00:29
at the latest news and index movement since our last episode.
00:00:32
The annual inflation rate in the UK was steady at 2%
00:00:36
in June 2024, the same as in May, and holding
00:00:40
at 2021 lows, although forecasts were pointing to
00:00:44
1.9%. Also in the UK, the unemployment rate stood
00:00:47
at 4.4% from March to May 2024,
00:00:51
unchanged from the previous three month period. Aligning with market
00:00:54
expectations, the US economy expanded by an annualized
00:00:57
2.8% in Q two, up from 1.4% in Q
00:01:01
one and above the forecast of 2%. The advanced estimate
00:01:05
shows the bank of Japan raised its key short term
00:01:09
interest rate at its July 2024 meeting to around
00:01:13
0.25% from the prior range of zero to
00:01:16
0.1% it set in March. Lastly,
00:01:20
keep an eye out for the Fed interest rate decision, which will be released this
00:01:23
evening, Wednesday the 31st. It is currently forecast at
00:01:26
5.5%, a reading that is stronger than this forecast is generally
00:01:30
supportive of the us dollar and vice versa.
00:01:35
As for our market movements, freight markets have generally been flat over
00:01:39
the past two weeks, with only the Cape index recording any
00:01:42
movement of note moving down around 5000 a day
00:01:46
over the period to
00:01:48
$20. P five.
00:01:51
TC closed yesterday
00:01:53
at
00:01:57
TC at 15 and the handysize
00:02:01
index at 13, barely moving
00:02:05
across the last fortnight. The iron ore
00:02:08
index dropped about $100, closing at $99
00:02:12
yesterday before a spike in trading today. More on that
00:02:15
later with how crude prices have continued
00:02:19
their slide that we've seen for the last month. This has dragged down
00:02:23
fuel oil prices, with the Singh HSFO now
00:02:26
prating at 475 and
00:02:29
0.5% at 580.
00:02:37
Our first guest today is Ben Kang. He'll be giving us a rundown on the
00:02:40
freight market. Thanks for joining us, Ben, and we have our
00:02:44
usual question for you. Could you please talk me through what has been
00:02:48
happening in the last week for the dry FFA market across all vessel segments?
00:02:52
Well, the Cape market experienced a continual decline of the last
00:02:56
week, with August dropping by
00:02:58
$3 and sinking to the lowest
00:03:02
value in four months on Monday. Last week there
00:03:06
was some early bid support, with August trading at 24
00:03:09
500 and September reaching at 26
00:03:12
750. However, following the negative
00:03:16
index of
00:03:18
minus,
00:03:24
market basically lost ground. The Cape size market
00:03:28
seems to be impacted by a decline in global cargo order
00:03:31
volumes and here you see particularly coal which has dropped
00:03:35
to a two month low. By Thursday, sellers
00:03:39
flooded the market, pushing August down to a low of
00:03:42
$22 and September down to
00:03:46
24. Friday
00:03:49
saw a similar trend closing just off the
00:03:53
days and weeks low, with August trade
00:03:57
as low as $21.
00:04:00
Turning to the Panamaxes, rates increased in the
00:04:04
first half of the week, peaking on Wednesday before
00:04:07
declining. Ultimately, the week closed with August
00:04:11
rates only $200 off Monday's opening
00:04:15
on Monday, August and September traded up to
00:04:19
15 and 15 respectively.
00:04:22
By Wednesday, rates hit their high, supported by a
00:04:26
better than expected index of plus
00:04:29
$336 to
00:04:31
$14, with
00:04:35
August and September reaching
00:04:37
$15
00:04:39
and
00:04:41
$16 respectively.
00:04:45
Q four had broken the 16 level
00:04:48
resistance the previous day, continued to push up and
00:04:52
printed 16, while Cal
00:04:56
25 traded back up to
00:04:58
13 by Friday.
00:05:02
The weak cape market and slowdown in
00:05:05
momentum in the underlying led to
00:05:09
mostly range bound trading, with August hitting lows of
00:05:12
14. And further out,
00:05:16
cal 25 traded down to
00:05:18
13. And
00:05:22
lastly for the supermaxes,
00:05:26
they followed a similar pattern to the Panamaxes, peaking on
00:05:29
last Wednesday before correcting. Last week
00:05:33
opened and closed approximately flat. Monday was a
00:05:37
quiet one with most trading volumes from
00:05:40
the prompt contracts, August and September traded up to a high
00:05:44
of 15 415
00:05:48
respectively, and on the index was
00:05:52
actually the flattest we've seen in a while at $1
00:05:55
down to 15.
00:05:59
A comparatively energetic day
00:06:03
on Wednesday with August and September reaching highs of
00:06:06
15
00:06:07
716 respectively.
00:06:11
Though this energy was mainly on the prompt, contracts with no
00:06:15
trades reported on the Cal contracts Thursday and Friday
00:06:19
did not maintain the positive sentiment, and by the end of
00:06:23
the week, August and September, we're both back, trading
00:06:27
at 15 and 15.
00:06:32
Thank you so much for that update. Unfortunately, that's all we have time for
00:06:36
today, but Ben, you'll be back in the autumn to give
00:06:40
us your regular freight update. I sure am. Thank you
00:06:43
very much, Jess. Thank you, Ben. On today's
00:06:47
episode we also have Martin Vera and Kathryn Wang calling in from the
00:06:51
US. Martin is a senior commodities broker and branch
00:06:54
manager of our Stanford office and he offers a range of freight,
00:06:58
ferrous and metals contracts. Meanwhile, Catherine is a broker on the steel desk,
00:07:02
but has recently started dabbling in aluminium premiums.
00:07:06
She is also based in New York. Stanford we will be
00:07:09
discussing the state of the steel market in the US and what we can expect
00:07:13
looking forward. Hi Martin, it's good to have you on the podcast.
00:07:16
Thank you so much for joining us today. It would be great
00:07:20
if we could start with a little bit of an introduction into
00:07:24
us steel. So my first question would be what is
00:07:27
US HRC futures and how long have
00:07:31
they been trading for us? HRC futures are
00:07:34
cleared monthly future contracts. They clear on
00:07:38
the CME, the Chicago Mercantile Exchange. They
00:07:42
were introduced in 2009. We have been
00:07:46
involved since the beginning. It basically is a
00:07:50
cash settled contract. It settles against the CRU Midwest
00:07:54
HRC index every month. That index is
00:07:57
out every Wednesday of every week. And who
00:08:01
has predominantly been using this contract and why? This
00:08:05
contract was championed by a few companies early
00:08:08
on to help them facilitate their business,
00:08:12
which can get pretty intricate. In 2000, 920
00:08:16
ten, the contract started to grow. It
00:08:20
is used by a wealth
00:08:23
of different types of
00:08:27
players in the market today. So whereas we
00:08:30
maybe even to 2015, I think we were still
00:08:34
2016, we were still hovering around 1 million
00:08:37
futures funds per year. We've
00:08:41
reached over 6.5. That's not even included options. Wow. Massive
00:08:45
growth there. The participants and depending on where you are, you know, if you're
00:08:49
a producer or importer, you can use the
00:08:52
futures to basically sell the futures proxy for your future
00:08:56
sales. If the levels are where
00:08:59
you think is fair
00:09:02
and if you are an end user or service
00:09:06
center, you can buy the future as a proxy for your
00:09:09
future purchases. It
00:09:13
also can be used, obviously if you're
00:09:16
warehousing stock, you can hedge your
00:09:19
inventory. Whether you're cash carry type
00:09:22
model or an importer with warehouses and
00:09:26
facilities or something along those lines sitting
00:09:30
on steel, you can use future obviously to hedge
00:09:33
that position. So Martin, you've mentioned the physical players
00:09:37
in the market. Are there any financials? There's
00:09:40
obviously quite a bit of activity coming from
00:09:44
financial intermediaries, primarily banks,
00:09:48
and there lately has been more activity coming
00:09:52
from fund types with different
00:09:55
strategies. So there is a, a certain amount of
00:09:59
speculation in the market these days, which is a nice, it
00:10:02
balances things to a certain degree, adds liquidity
00:10:06
and gives us another. Generally when youre
00:10:10
talking about just physical folks, sometimes the market used
00:10:13
to get a little one sided. As you add more
00:10:17
breath and more participants, it becomes a little more balanced. Theres
00:10:21
certainly volatility that
00:10:24
going to mainstay but it's easier to
00:10:28
navigate when you have more participants obviously. So what is unique about the
00:10:32
US steel industry? The US steel industry is
00:10:35
the fourth largest crude steel producer in the world
00:10:39
with a little bit over 80 million tons per year.
00:10:43
The industry has gone through changes let's say the last 50 years
00:10:47
where it was mainly integrated steel mills
00:10:51
that produce most of the steel. Now we have electric arc furnaces
00:10:55
that have pretty much taken over we're up
00:10:59
to about 70% is what I keep reading of
00:11:03
production in the US is from electric arc furnaces so
00:11:06
that is a big difference compared to the rest of the world whereas the world
00:11:10
is I think around 28% roughly
00:11:14
from electric arc furnaces. So we've taking on
00:11:18
this type of model which uses more
00:11:22
scrap in the process and that
00:11:25
has really changed
00:11:29
the landscape here in the US versus
00:11:32
the rest of the world. I would say the capacity
00:11:36
utilization is around 80% it tends to go a little bit
00:11:40
under depending on business cycle a little bit
00:11:43
of seasonality excluding the
00:11:47
pandemic it's gone from let's say
00:11:51
70% I think in December 22 or rather
00:11:55
it was 85% August 21 and that was close
00:11:59
to the peak that we had seen recently and
00:12:03
70% utilization in December of 22.
00:12:06
Okay as things started to normalize. So what is
00:12:10
volatility on us HRC futures now and what
00:12:13
drives this? That's a very good question.
00:12:17
Implied volatility on the front end let's say like October
00:12:21
November contracts right now roughly around 25%.
00:12:25
That has steadily come down to this point
00:12:28
from post Covid when it was
00:12:32
roughly 35% to 40%
00:12:34
regularly it's certainly come down but we've gone through this
00:12:38
period of normalization, price normalization and
00:12:42
obviously that price has come down. The volatility has come down a little bit
00:12:46
but it's certainly not at levels that were pre Covid.
00:12:50
As far as volatility there are still jolts in the market
00:12:53
and supply and demand jolts,
00:12:57
tariffs involved and all that produces a
00:13:01
great deal of price risk in the simplest form
00:13:05
what produces volatility of course is demand and supply
00:13:08
fluctuations. Right we know this. Production utilization
00:13:12
imports the state of the economy, the business
00:13:16
cycle, seasonality, government stimulus or
00:13:20
regulations tariffs and of course supply jolts
00:13:24
all influence fiscal price. So any perceived change in any
00:13:28
of those factors will have if not immediate
00:13:32
pretty close effect on the futures curve. So
00:13:36
I mean just to give you an example there was a lot of
00:13:40
imports scheduled for this
00:13:44
summer, this spring summer which was getting a lot
00:13:48
of chatter in the market as that information
00:13:51
spread throughout the market that had an effect on the
00:13:55
curve, flattened it at first, and then went
00:13:58
into a backward issue. So that's something that happens
00:14:01
pretty quickly, that type of information that comes out
00:14:05
as folks are doing the math, they figure, well,
00:14:09
prices aren't going to hold up under that pressure.
00:14:12
So we have examples like that.
00:14:17
We had an example back in 2021, on November
00:14:20
2021, when there was a fire in the
00:14:24
plant in Michigan that caused, it
00:14:27
was a, a fairly big mill that caused
00:14:31
supply disruptions. Right. They had to shut it down. They didn't know when it was
00:14:34
going to come back to speed. Like I mentioned, it's very difficult to shut things
00:14:38
down and start to back up. It takes time. So as soon as that
00:14:41
happened, that had immediate effect. It happened overnight. By the time
00:14:45
we were rolling in early morning, the curve had
00:14:49
already changed. People's appetites had changed for
00:14:52
periods. Prices, obviously, that puts a lot of pressure,
00:14:56
upward pressure on prices if you're going to have less supply in
00:15:00
the market. And then I
00:15:03
think another great example of this is the elections this fall as well.
00:15:07
So now we're anticipating elections this fall
00:15:11
to result in somewhat favorable
00:15:14
or pro business type of party, which
00:15:18
will lead to pro business policy. Props on possibly, which is going
00:15:22
to help prices. And we see this premium in Q one and Q two relative
00:15:26
to Q four. Granted, spot is lower
00:15:30
and we're already in a contango, but there's
00:15:33
definitely optimism for Q one and Q two. Just
00:15:37
based on the information that's available, the
00:15:41
polling and what the results may be from the elections here in the.
00:15:44
US, how does the market look now, given all this
00:15:48
turmoil, all this volatility that you've been talking about over the. Past five years,
00:15:52
maybe back up a little bit. From 2009 to 2019,
00:15:56
the spot range was from roughly, this is quarterly number
00:15:59
from 400 to 900 per ton.
00:16:04
From 2019 to 2024, that range
00:16:07
went from 500 per ton to almost
00:16:11
a 1000, 2000 per ton. So it's quite a
00:16:14
difference. Obviously, the pandemic was a major factor
00:16:18
causing supply
00:16:21
disruptions here in the states. It was, demand
00:16:25
was obviously disrupted, especially during the lockdown,
00:16:29
but it pretty much snapped back in many sectors.
00:16:33
It was really the supply side. It was just a shortage. It's very
00:16:36
difficult to stop and then start steel
00:16:40
production on a national scale. And no matter how
00:16:43
fast you want to do it, it's going to
00:16:47
take longer. So we saw this drag out quite a bit,
00:16:51
and we never could really catch up with demand because
00:16:55
they could not ramp up fast enough, and that caused
00:16:58
massive spikes in price. And since
00:17:02
2021, where it peaked, we've seen
00:17:06
things normalize down to the level.
00:17:10
Roughly October 2019, we were
00:17:13
$500 a ton. We have now
00:17:16
tested 700 or lower three times since
00:17:20
2022. So with that said, I don't foresee
00:17:23
us getting back down to that level. I think these levels now
00:17:28
could look very attractive to the market to
00:17:32
end users, to service centers. We'll see how it goes. The
00:17:36
mills have now taken a step in just this
00:17:39
week, started to pull back on prices, so we'll see
00:17:43
where it goes, but it looks like you're going to see a little bit more
00:17:47
volatility, probably to the upside at this point.
00:17:50
Thank you, Martin. That was very comprehensive overview of the us steel
00:17:54
market. It's always good to have different topics on the
00:17:58
podcast, so we really appreciate it. Thank you for your time.
00:18:01
You're very welcome. Hi Catherine, welcome to your first podcast.
00:18:05
It's great to have you with us. First things first,
00:18:09
can you give us an update on the current state of the us domestic raw
00:18:12
steel production and how it has been trending recently? For the week
00:18:16
ending July 27, us domestic raw steel
00:18:20
production experienced a slight fluctuation, so it
00:18:23
decreased by 0.6% from last week, but showed a
00:18:26
2.4% increase year over year, with capacity
00:18:30
utilization sitting at 77.9%.
00:18:33
However, if we look at the year to date numbers, domestic
00:18:37
production is down by 2.3% compared to last
00:18:40
year, and lead time for flat row steel mills have been steady at
00:18:44
about 4.5 weeks over the past month. According to
00:18:48
Steel Market update, Steel service center inventories edged up
00:18:52
2% month over month to 2.2 million tons as of
00:18:55
June 2020, which translates to around 61
00:18:59
shipping days of supply. So that being said, what are you hearing and
00:19:03
seeing which might indicate the future trends as we move
00:19:07
into h two of 2024? That is a great question. So
00:19:11
several us steel producers have reported their q two results in the
00:19:14
past two weeks, and the management commentary points to possible drivers
00:19:18
of price recovery in the second half of 2024.
00:19:22
For instance, Cliffs mentioned that end user
00:19:26
demand for steel is healthy, but some service centers are drawing down to
00:19:29
inventory to below basement levels and are not buying at low
00:19:33
replacement costs. They believe that even a small catalyst
00:19:36
like a rate cut, certainly around the us presidential election
00:19:40
results or trade enforcement, could spark a rebound in sale
00:19:43
prices. Speaking of rate cuts, it seems likely given
00:19:47
that the us headline Pcette was 2.5% in
00:19:51
June, down slightly from 2.6% in May, and Fed
00:19:54
funds futures are indicating three rate cuts by the end of year.
00:19:58
Nucor also pointed out that several end markets, including
00:20:02
construction for semiconductors, advanced manufacturing
00:20:05
facilities, data centers, healthcare facilities, and energy and
00:20:09
infrastructure products, are still looking healthy. Okay, so I've also been
00:20:13
hearing some discussions about the impact of mexican steel
00:20:16
imports on the us market. Can you please explain some
00:20:20
recent developments to me? So both cliffs and Nucor have flags
00:20:24
in Mexico as a significant issue. Mexico has been
00:20:28
leveraging North American Free Trade Agreement and US
00:20:31
Mexico Canada agreement to tranship steel from countries
00:20:35
like China, Japan, South Korea and Brazil. This has
00:20:39
been a point of concerns for us producers. However, the
00:20:43
Biden administration announced on July 10 the
00:20:46
reinstatement of section 232 tariff at a rate of
00:20:50
25% on seal imported from Mexico is melting
00:20:53
import into a country other than Mexico, Canada or the
00:20:57
US. And this move has been welcomed, of course, by
00:21:00
domestic steel producers. Cliffs even expect Mexico to be
00:21:04
removed from the USMCA in 2022. These
00:21:08
tariffs and any further trade enforcement actions related to Mexico
00:21:12
should provide a boost to us seal and scrap prices.
00:21:16
So last question to round this all off. How are
00:21:20
current prices and the forward curve shaping up for bushing
00:21:23
scrap? As of July 26, us number one bushing
00:21:27
scrap prices have remained steady at around
00:21:30
$380 per ton deliver midwest and
00:21:33
$395 per ton deliver southeast. Open interest
00:21:37
has been stable at around 2500 contracts mid
00:21:41
July. The forward curve suggests gradually increasing prices,
00:21:44
reaching about $455 per ton by the end
00:21:48
of the year. Thank you so much Catherine. It's been great to have you on.
00:21:52
It's always interesting for me to do a little bit of a different topic.
00:21:56
I'm sure our listeners will be interested in this too, and
00:21:59
hopefully you can come to London sometime soon. Of course, I will
00:22:03
see you soon. Hopefully. Hopefully. Thank you
00:22:06
Catherine. To round out our guest today we have Hao Pei who
00:22:10
will be giving us his update on ferrous products. Iron ore has seen a correction
00:22:14
during this last report week. However, there was a big spike today.
00:22:17
What happened and will this become sustainable? Actually,
00:22:21
iron ore corrected for three weeks previously. We
00:22:25
just hit the train for the past two weeks, mentioning
00:22:28
in our weekly reports we missed the first correction
00:22:32
week, but the rebound today was related
00:22:36
to a recent derailment in BHP. However,
00:22:39
this is too recent so there is no further details about the
00:22:43
real impact. But we assumed the accidents should
00:22:47
be over less than a week. And during this
00:22:51
morning we saw a quick recovery on China
00:22:54
equities. In fact, the
00:22:57
CSI, which is China securities
00:23:00
index 300 up by
00:23:03
2.16% which
00:23:07
created the biggest single day increase
00:23:11
from the early February, so which lifted
00:23:14
sentiments on metal products, including ferrous in
00:23:18
particular. So in addition, we heard mills in
00:23:22
different provinces of China started to protect this
00:23:25
price of finished steels and started
00:23:29
proactively cut production
00:23:33
and started maintenance from late July
00:23:36
to late August. And I think
00:23:40
the correction trend in mid run
00:23:44
yet should see a big reversal at the standpoint
00:23:47
because of the high delivery and high
00:23:51
inventories. And also Vietnam launched
00:23:54
export tariffs against China and India so which could
00:23:58
be huge since those are two biggest importers of iron
00:24:02
ore of the world. And second of all, Vietnam is top
00:24:06
three importers of finished steels for China and
00:24:09
Vietnam accounted for almost 12% of steel
00:24:13
export from China in H one. So I think the
00:24:17
trend, the spike is probably the short run
00:24:21
trend. I do think this might probably take few days or
00:24:24
even weeks more, but in mid run we haven't seen any
00:24:28
signals for the reversal of the rna.
00:24:31
And for FoB Australia coking coal, it
00:24:35
approached a two year low. How long will this
00:24:39
bearish trend last? I honestly think the
00:24:42
correction is not over yet. That's also for a mid run or low
00:24:46
run standpoint. I think the fob coking coal has
00:24:50
chances to see lower place in August and September,
00:24:53
in other words because of a very high supplies and fried
00:24:57
lakers. However, in short run following the resilient demand in
00:25:00
China and India are getting back to the market
00:25:04
as well as narrow a bid and offer prices in
00:25:08
some of the pmbs and plvs that indicate there will be
00:25:12
some brutal trading recently. So we saw chances of
00:25:16
deposition in short runs for the coking core. Thank you so much
00:25:20
for that update, Hal and joining us today. Thank you
00:25:23
Jess. See you in the wild. Thank you again for
00:25:26
joining us. And just a reminder that this will be the last episode before
00:25:30
we take a summer break, but we'll be back in the autumn. We look forward
00:25:34
to giving you more insights on freight and commodity markets
00:25:38
at that point. But until then you can get signed up to our app fis
00:25:42
live to make sure you never miss any analysis from FIS.
00:25:46
And that will be it for this week. Make sure to subscribe by clicking the
00:25:49
subscribe button on wherever you get your podcast. Also make sure to follow us
00:25:53
on LinkedIn.
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