Hello and welcome back to Freight Up, the number 1 commodities and freight markets podcast from FIS.
We're your hosts, Jess, and Davide, and in this episode of Freight Up and in this episode, we’re joined by Ben Klang, who breaks down the latest trends in the dry freight market, Hao Pei discussing the rebound in iron ore prices, and Archie Smith providing an update on the decline in Brent crude futures.
Additionally, we have Hugh Taylor from FIS, sharing his expertise on risk management in shipping post a successful seminar in Athens.
Whether you're a current client or someone who's thinking of working with us, this episode's packed with essential information to keep you informed on the critical movements within the trading sphere.
Listen in as we explore these topics and more on Freight Up!
Remember, follow "Freight Up" in your favourite podcast app, and find us on LinkedIn!
And check out our app FIS Live for the latest insights.
Thanks in advance for listening to this Freight and Commodity podcast by FIS!
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Timestamps
00:00 Market updates: iron ore and dry freight.
03:23 May and June market rates fluctuated but closed higher.
07:27 Iron ore fell as expected, market analyzes.
10:25 Decrease in war premium affects oil prices.
13:41 Assist Greek shipping clients with trading derivatives.
17:54 Greek generation interested in shipping options, future plans.
00:00:00
This week on Freight up, we take a look at the latest movements in the
00:00:04
freight markets with our Copenhagen resident Ben Klang. And we look at the
00:00:07
reasons of the rebound in iron ore prices of last week with Hao
00:00:11
Pei from our Shanghai office. Archie Smith will tell us more about the
00:00:15
recent fall in Brent crude futures, and a special guest, Hugh Taylor from
00:00:18
our London consultancy. All this and more on Freight up. Freight
00:00:22
up. Hello
00:00:26
and welcome back to Freight up. My name is Jess. And I'm Davide, and on
00:00:30
this episode we'll be your hosts as we navigate the seas of freight and commodities
00:00:34
this week. We are joined by our usual guests, Ben, Archie and Hal, as
00:00:37
we review our main markets of dry freight, oil and iron ore, as
00:00:41
well as a guest appearance by Hugh Taylor, the manager of the consultancy here at
00:00:45
FIS. But before we get the market specific
00:00:49
updates, we should have a look at the latest news and the index
00:00:52
movements since our latest episode.
00:00:56
What has been the broad market movements of the last two weeks?
00:01:00
Let's take a quick look at this week's numbers. So
00:01:04
the iron ore index has slowed back more of the territory
00:01:08
it has lost over the past few months. The
00:01:11
62% index has crept up from
00:01:13
133 $65.02 weeks ago
00:01:17
to 118 $75. More on that later
00:01:21
from our Shanghai analyst, Hao Pei. The dry freight market has been
00:01:25
a tale of two halves. On the one side, there's been the smaller ships with
00:01:29
the handy seven TC and supermax indexes,
00:01:32
basically non movers, week on week for the last two
00:01:36
weeks, the former at around $30 and the latter at around
00:01:40
16. The Panamax five TC index had a bit
00:01:43
more movement, ranging from 15 to 17 and a
00:01:47
half $1. But by far the big one has been a week
00:01:51
on week move of 54% in the Cape
00:01:55
five TC index. On the fuel oil front, the high
00:01:58
sulfur fuel has popped back above $500 a
00:02:02
tonne, closing yesterday with single five dropping
00:02:06
down towards $600, along with falling crude prices, which
00:02:09
have come down from $90 a month ago to $82
00:02:13
today. Let's
00:02:17
get a bit more detail on what we have seen in the drive freight market
00:02:20
from Ben Klang. Ben, thanks for joining us. Once again, we're
00:02:24
talking about some serious moves in the Capes, aren't we? Yeah, exactly. I
00:02:28
mean, one group, I don't envy other Cape FFA traders at the
00:02:32
moment. Again, we've seen some good moves in that market
00:02:35
with less pronounced move on the other ship sizes. If you look at the
00:02:39
Cape market last week, we saw most of the April losses
00:02:43
were recuperated over the past week. This was
00:02:46
driven particularly by the North Atlantic with
00:02:49
increased cargo inquiries and Titonis list which
00:02:53
has driven much stronger fixture levels. This impressive growth in
00:02:57
the Capes has driven forward growth in other markets too. While
00:03:00
things kick off to a slow start of the week, we got some market
00:03:04
support which pushed May and June trading up to
00:03:08
24 and a quarter and 28 and a quarter on
00:03:12
Tuesday respectively. Despite the labour holiday on Monday
00:03:15
and the low volumes, we continue to see positive moves in the
00:03:19
markets, especially on Thursday due to lower lesser vessel
00:03:22
supply. This helped push May and June up to
00:03:26
26, 750 and 30 and a half by the end of the
00:03:30
week to then see may close last night
00:03:33
at 750 and June closing at
00:03:37
32. Three seven five if you're looking at the Panamax,
00:03:40
market rates were a bit of a mixed bag,
00:03:44
fluctuating between positive momentum to range bound
00:03:47
trading. Physically speaking, tonnish count rates
00:03:50
held steady and there was limited transatlantic and
00:03:54
frontal fixtures. Though the week started slowly and the labour
00:03:58
holidays significantly impacted liquidity, there was still a lot
00:04:02
of optimism, with Thursday's rate seeing May and
00:04:06
June trading up to 16 450 and
00:04:09
17 respectively. To then see may close
00:04:13
last night at 1735 and June
00:04:16
closed at 1795 last
00:04:20
night the supermax had some
00:04:23
potential towards the beginning of the week, with a focus
00:04:27
on the near dated contracts following the movements of the
00:04:31
larger sizes. This gradually declined as the week
00:04:35
continued and by Thursday the supras did not
00:04:38
follow the notable upturn of the other FFA
00:04:42
market, perhaps due to weak cargo order
00:04:46
volumes. However, the dated flow supported and
00:04:49
slightly higher than the previous one. This sentiment continued
00:04:53
throughout the week with comparatively lower interest than
00:04:57
the other markets. FFA wise. May and June
00:05:00
contracts ended the week just over the
00:05:04
16 mark and Q four at 14
00:05:08
600. Thanks for talking us through
00:05:12
those rates. What are we looking at this week volume wise? Rather active
00:05:16
week for the ffas last week despite the holidays,
00:05:19
with trading volumes of around
00:05:21
51 lots posted on the
00:05:25
exchanges. On average, Cape and Panamax futures
00:05:29
traded around 4600 lots and
00:05:33
3430 lots per day last week.
00:05:36
Super access had a less active week with the average of
00:05:40
880 lots traded daily last week. On the
00:05:43
option side, the main action was also on the
00:05:47
capes, with 3320 lots
00:05:51
being cleared on the Cape and 5090
00:05:54
days on the Panama axis. Open interest decreased
00:05:58
as April and Q two come to expire.
00:06:02
On the 6 May Cape, five tc was
00:06:05
at
00:06:06
163
00:06:10
and that's down 17 week on
00:06:14
week and on the Panamax is four tc open
00:06:18
interest was at
00:06:19
163
00:06:23
and that's down 17
00:06:27
week on week. And then finally the supermax ten
00:06:31
tcs was at
00:06:33
76 which is
00:06:36
also down 9480
00:06:40
week on week. In addition, we saw good volume on
00:06:44
the Voyage routes futures last week with
00:06:46
4.85 million tons changing hands on
00:06:50
c 5275 kt on
00:06:53
the c three and
00:06:56
765 kt on the c seven. Looks
00:07:00
like a good volume week. Thank you Ben for that update and I
00:07:04
look forward to hearing where we end up on our next market update from the
00:07:07
dry freight market. It thank you Jess.
00:07:12
Next we have Halpe senior analysts from our Shanghai office. So
00:07:16
how great to have you with us. We have seen the iron ore
00:07:20
index rebound from around 2.65% during the
00:07:23
past report week. What caused this growth? Iron
00:07:27
ore generally fell into expectation last week,
00:07:31
as we mentioned in the previous cast that the correction
00:07:35
would not be sustainable by that time the Epsilon
00:07:38
papaya nor was rather humble compared with
00:07:42
copper, oil, silver and other
00:07:45
folktales global wise and brakes in
00:07:49
late April the market started to trade
00:07:53
risk off well against expecting temporarily
00:07:56
ceasefire in mid east or Red Sea area as
00:08:00
well. The US federal conference reviewed salvage
00:08:04
signals during past week and what's more,
00:08:07
China political
00:08:11
infrastructure and housing market before the
00:08:14
holiday. These are all good news. So after a
00:08:18
combination of good news and compared with other high
00:08:22
liquid assets, the growth on iron ore might explain the market
00:08:25
was not super positive on the product. I mean just
00:08:29
compared to all the rest of our asset classes. Just following the
00:08:33
growth after headlines put out and digest by market,
00:08:37
I think it comes out of period of
00:08:40
second gas though which is the downside
00:08:44
risk. All right, so
00:08:47
similar question to last podcast, but do you think
00:08:51
the growth this time will be sustainable? As I mentioned, downside
00:08:55
risk. So I think the growth will be sustainable if we
00:08:59
go back to the fundamental side, which is the margin,
00:09:02
which is the low of
00:09:06
the year and also a seasonal low which would
00:09:10
give further limit on the production size of
00:09:13
steel. That is why we can't see a traditional business
00:09:17
even this year. The low margin condition lasts through
00:09:20
the entire 2024 h one so
00:09:24
far. On the other side, according to Lincoln
00:09:27
schedules, the arrivals of iron ore would also peak
00:09:31
in May. At the same time, iron ore inventories were
00:09:35
at a seasonal high level. So oversupply is a basic
00:09:39
tone of iron ore market in May. So in general
00:09:42
iron ore is slight bearish on fundamental
00:09:46
perspective and also overvalued correlate from
00:09:49
my perspective. All right, well thank you so much. For that
00:09:53
update Hal and now let's talk about
00:09:57
fuel oil with the people's broker Archers middle. Archie, thank you
00:10:01
very much for joining us again. How are you doing today? Yes, all good,
00:10:05
all good. Glad to be back. The friend month, brent crude
00:10:08
futures actually fell. I think it was around like six to 7%
00:10:12
on the week last week. Of course. Are we still looking at some
00:10:16
sort of like depleting war premium? Are there other factors to play any
00:10:19
geopolitics for your international relations geek like
00:10:23
myself? Yeah, for sure. I mean, it's still
00:10:27
very much a decrease in the war premium that I spoke about on
00:10:31
the last episode two weeks ago. To kind of follow on from that, I
00:10:34
mentioned in that podcast that some analysts at Bloomberg had estimated like a
00:10:38
rather extreme $25 war premium, whereas other analysts
00:10:42
in the market are looking more at a kind of five to ten dollar war
00:10:46
premium, which I think is slightly more realistic. And yeah, again, look, as
00:10:49
ceasefire talks continue and escalation
00:10:53
kind of subdues or steadies, if you will.
00:10:57
There is certainly that factor of this war premium that had already been priced in
00:11:01
by the market sliding. There are other factors indeed that have kind of come about
00:11:05
this week that are really affecting the price as well. I mean, mid week last
00:11:08
week we had the US EIA data, which
00:11:12
is the data that shows the oil and products
00:11:16
inventories in the US. They had a massive kind of surprise build of
00:11:20
over 7 million barrels in the crude. I think estimations were well off.
00:11:24
And that kind of snowballed, acted as a catalyst for the,
00:11:27
for the Brent cruise. Well, it fell about 3% on the day and
00:11:31
certainly snowballed into about 7% fall on the week. And that's been
00:11:35
reinforced again last night by the API data
00:11:39
that again showed a smaller build of crude, which is basically just kind of
00:11:42
suggesting that there is kind of ample supply in the physical market, which
00:11:46
again is adding that downward pressure to the future.
00:11:50
Yeah, so off the back of the API data that came out last night, I
00:11:52
mean, Brent's off 1% on the day already. And another thing I
00:11:56
suppose, to mention is the US dollar has been getting
00:12:00
stronger kind of from the middle of last week. We've seen an uptick in the
00:12:03
US dollar. When the US dollar gets stronger. Holders of other currencies against
00:12:07
the dollar have less buying power for crude because it all trades in dollars.
00:12:10
We often see an inverse relationship there. When the US dollar strengthens, crude comes off
00:12:14
because less people are buying it. Another point to mention that's definitely had a
00:12:18
play yesterday or the day before when the news came out is russian
00:12:22
deputy head came out with a statement saying, look,
00:12:25
we are prepared to adjust oil production if
00:12:29
needs must. And he was actually talking from the opposite direction that OPEC have been
00:12:32
going recently. And he was basically saying if oil production needs to be increased, we
00:12:35
can do it. That's not to say they have done that yet, or they will
00:12:38
do that. But just a headline alone did really influence the market with that
00:12:42
kind of feel of that flurry of more supply and again added that downward pressure.
00:12:45
So, I mean, you know, the front branch crude futures have gone from kind of
00:12:49
highs of $90 or just over $90 last month, and now we're trading
00:12:53
around the $82 barrel level. So, yeah, certainly seeing some weakness in the
00:12:56
market there. Okay. We will see how the story unfolds and especially like
00:13:00
the whole OPEC Russia relationship continues.
00:13:04
Yeah. So that's another very interesting aspect. So thank you
00:13:07
very much, Arshi, for joining us today. Thank you, sir. And I wish you a
00:13:11
nice day. Now, on the
00:13:14
25 April FIS were down in Athens hosting a
00:13:18
seminar on shipping risk management. From what we've learned, this
00:13:21
seminar has been a success. But to tell us a little about it,
00:13:25
we have Fiss consulting manager Hugh Taylor, who organized
00:13:29
it and gave a presentation on risk management. Hugh, thank you very much
00:13:33
for joining us today. Could you start by giving us maybe some background
00:13:37
on why you held that conference, what it was about and how it
00:13:40
went? My job is to help clients with topics such
00:13:44
as shipping's admission into the EU ETS, the emissions trading
00:13:47
system, and how to set up for and trade
00:13:51
derivatives. More often than not, I find myself working with greek
00:13:55
clients, which is perhaps no surprise, given they own about
00:13:58
a quarter of the global fleet. In fact, in a list
00:14:02
recently published by the EU, a list that assigns shipping companies
00:14:06
to an EU country, there are over 750 companies
00:14:10
assigned to Greece, which is roughly double the number of that
00:14:13
of the second place country, which in fact only has so
00:14:17
many companies assigned to it, as many non EU countries
00:14:21
are actually registered to it because they just call there for
00:14:25
their fuel. We wanted to head down there to teach some of these
00:14:28
shipping companies about ways that we could help them manage some of their key
00:14:32
risks, their costs of freight, fuel and carbon.
00:14:36
So our CEO, John B. Opened up with a section on
00:14:39
forward freight agreements, as he often does. He talked about the
00:14:43
makeup and size of the FFA market yesterday, today and
00:14:47
tomorrow. It was great as ever to get John's
00:14:51
perspective as he's been involved with the FFA industry since the
00:14:54
early days and even negotiated some of the first trades back in
00:14:58
the late eighties. One striking statistic
00:15:02
to come out of John's segment, which I heard many people
00:15:05
repeating during the drinks afterwards, was that although Greece owns
00:15:09
25% of the global fleet, it is responsible for only
00:15:12
about 2% of the freight derivatives market. Well, this
00:15:16
is very significant, but do you have any idea why
00:15:20
that is? I think there are many reasons. I've spoken
00:15:24
recently, in fact, with some of the biggest greek ship owners,
00:15:27
some of the biggest shipping companies in the world that do not
00:15:31
trade derivatives, and that seemingly as a principle,
00:15:35
they prefer instead to use like traditional risk management methods,
00:15:39
such as diversifying their fleets or
00:15:42
rotating into long term time charter markets,
00:15:46
which are more stable and index linked transactions.
00:15:50
These are indeed effective methods to fully
00:15:53
hedge. One would have to use also FFA and
00:15:57
fuel derivatives. In fact, almost all our medium sized shipping
00:16:01
clients outside of Greece use them extensively. One of the many
00:16:04
reasons that greek companies are opposed to
00:16:08
them seems to be a long running hangover from the financial
00:16:12
crisis, in the fallout of which many companies lost a lot of
00:16:16
money because they held OTC FFA positions with
00:16:19
counterparties that went bust due to the crisis. FFA are no
00:16:23
longer OTC. They're cleared on exchange. In fact, that change
00:16:27
happened back then. Yet many Greeks remain
00:16:30
marked by this time and refuse
00:16:34
to accept the post 2009 structures which have actually come a
00:16:37
long way. So going back to
00:16:41
the conference, was it only about this sticking point?
00:16:45
Oh no, not at all. That seemed to be a key
00:16:49
topic that emerged. But actually after Jon, we had an FFA
00:16:52
trader who gave us a glimpse of what it looks like from a practical
00:16:56
standpoint. He talked a lot about portfolio management. We then had
00:17:00
a marine fuels expert discussing many of the
00:17:04
new alternative fuels that have emerged recently and their
00:17:07
financial viability under the EU ETS and fuel, EU maritime.
00:17:11
We then finally had moved on to the EU ETs and we
00:17:15
had a talk on sort of key drivers within the EUA
00:17:19
market. And we also had a representative from Greece's EU
00:17:22
registry who offered practical advice and
00:17:26
considerations when opening and operating an EUA
00:17:29
account. Finally, I followed up with a brief
00:17:33
insight into sort of risk management trading strategy across
00:17:37
all three products. I also talked about how our consultancy helps
00:17:41
clients get set up to trade. Okay, so like, it looked like very
00:17:44
interesting, it was a very interesting conference and I guess that there were a lot
00:17:48
of questions. So what kind of questions were asked by the attendees
00:17:52
and what are the next points on the agenda? There were a few questions
00:17:55
were asked in the actual event, but following the event, we put on a sort
00:17:59
of drinks and canopies afterwards up in this nice bar on the 8th
00:18:03
floor. And yet we were approached by loads of
00:18:07
people, id say, particularly the younger
00:18:10
greek generation, the traders. They wanted to
00:18:14
learn more about a number of the topics from the day, but
00:18:17
particularly, id say, hedging using options. The FFA
00:18:21
options market has been growing really well in recent years, but
00:18:25
options are still very underused by shipping
00:18:28
players, particularly in comparison to other industries like
00:18:32
aviation. In fact, in my speech I gave an example of a structured trade
00:18:36
and fuel oil, which is actually a combination of options. I
00:18:40
also gave a real life example of a simple year long
00:18:43
simple hedge that uses an outright core strip. Anyway,
00:18:47
with regards to what's next. Yeah, we're planning to get back down there to
00:18:51
Athens to put on some classes on basic derivatives to answer
00:18:55
some of this demand, which is great, really, because I really love greek
00:18:59
salads. Yeah. So I'll be taking an evening class in Greek
00:19:02
and stocking up on the. Old sun cream that seems much needed in Greece.
00:19:06
Okay, thank you very much you for joining us today. Thanks Davide. Thanks
00:19:10
everyone. And that's it for this week.
00:19:13
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00:19:33
freight up.