What Drove Cape 5TC’s 54% Spike?

This week on Freight up, we take a look at the latest movements in the

freight markets with our Copenhagen resident Ben Klang. And we look at the

reasons of the rebound in iron ore prices of last week with Hao

Pei from our Shanghai office. Archie Smith will tell us more about the

recent fall in Brent crude futures, and a special guest, Hugh Taylor from

our London consultancy. All this and more on Freight up. Freight

up. Hello

and welcome back to Freight up. My name is Jess. And I'm Davide, and on

this episode we'll be your hosts as we navigate the seas of freight and commodities

this week. We are joined by our usual guests, Ben, Archie and Hal, as

we review our main markets of dry freight, oil and iron ore, as

well as a guest appearance by Hugh Taylor, the manager of the consultancy here at

FIS. But before we get the market specific

updates, we should have a look at the latest news and the index

movements since our latest episode.

What has been the broad market movements of the last two weeks?

Let's take a quick look at this week's numbers. So

the iron ore index has slowed back more of the territory

it has lost over the past few months. The

62% index has crept up from

133 $65.02 weeks ago

to 118 $75. More on that later

from our Shanghai analyst, Hao Pei. The dry freight market has been

a tale of two halves. On the one side, there's been the smaller ships with

the handy seven TC and supermax indexes,

basically non movers, week on week for the last two

weeks, the former at around $30,000 and the latter at around

16,000. The Panamax five TC index had a bit

more movement, ranging from 15,000 to 17 and a

half $1,000. But by far the big one has been a week

on week move of 54% in the Cape

five TC index. On the fuel oil front, the high

sulfur fuel has popped back above $500 a

tonne, closing yesterday with single five dropping

down towards $600, along with falling crude prices, which

have come down from $90 a month ago to $82

today. Let's

get a bit more detail on what we have seen in the drive freight market

from Ben Klang. Ben, thanks for joining us. Once again, we're

talking about some serious moves in the Capes, aren't we? Yeah, exactly. I

mean, one group, I don't envy other Cape FFA traders at the

moment. Again, we've seen some good moves in that market

with less pronounced move on the other ship sizes. If you look at the

Cape market last week, we saw most of the April losses

were recuperated over the past week. This was

driven particularly by the North Atlantic with

increased cargo inquiries and Titonis list which

has driven much stronger fixture levels. This impressive growth in

the Capes has driven forward growth in other markets too. While

things kick off to a slow start of the week, we got some market

support which pushed May and June trading up to

24 and a quarter and 28 and a quarter on

Tuesday respectively. Despite the labour holiday on Monday

and the low volumes, we continue to see positive moves in the

markets, especially on Thursday due to lower lesser vessel

supply. This helped push May and June up to

26, 750 and 30 and a half by the end of the

week to then see may close last night

at 750 and June closing at

32. Three seven five if you're looking at the Panamax,

market rates were a bit of a mixed bag,

fluctuating between positive momentum to range bound

trading. Physically speaking, tonnish count rates

held steady and there was limited transatlantic and

frontal fixtures. Though the week started slowly and the labour

holidays significantly impacted liquidity, there was still a lot

of optimism, with Thursday's rate seeing May and

June trading up to 16 450 and

17,000 respectively. To then see may close

last night at 1735 and June

closed at 1795 last

night the supermax had some

potential towards the beginning of the week, with a focus

on the near dated contracts following the movements of the

larger sizes. This gradually declined as the week

continued and by Thursday the supras did not

follow the notable upturn of the other FFA

market, perhaps due to weak cargo order

volumes. However, the dated flow supported and

slightly higher than the previous one. This sentiment continued

throughout the week with comparatively lower interest than

the other markets. FFA wise. May and June

contracts ended the week just over the

16,000 mark and Q four at 14

600. Thanks for talking us through

those rates. What are we looking at this week volume wise? Rather active

week for the ffas last week despite the holidays,

with trading volumes of around

51,230 lots posted on the

exchanges. On average, Cape and Panamax futures

traded around 4600 lots and

3430 lots per day last week.

Super access had a less active week with the average of

880 lots traded daily last week. On the

option side, the main action was also on the

capes, with 3320 lots

being cleared on the Cape and 5090

days on the Panama axis. Open interest decreased

as April and Q two come to expire.

On the 6 May Cape, five tc was

at

163,928

and that's down 17,600 week on

week and on the Panamax is four tc open

interest was at

163,647

and that's down 17,820

week on week. And then finally the supermax ten

tcs was at

76,106 which is

also down 9480

week on week. In addition, we saw good volume on

the Voyage routes futures last week with

4.85 million tons changing hands on

c 5275 kt on

the c three and

765 kt on the c seven. Looks

like a good volume week. Thank you Ben for that update and I

look forward to hearing where we end up on our next market update from the

dry freight market. It thank you Jess.

Next we have Halpe senior analysts from our Shanghai office. So

how great to have you with us. We have seen the iron ore

index rebound from around 2.65% during the

past report week. What caused this growth? Iron

ore generally fell into expectation last week,

as we mentioned in the previous cast that the correction

would not be sustainable by that time the Epsilon

papaya nor was rather humble compared with

copper, oil, silver and other

folktales global wise and brakes in

late April the market started to trade

risk off well against expecting temporarily

ceasefire in mid east or Red Sea area as

well. The US federal conference reviewed salvage

signals during past week and what's more,

China political

infrastructure and housing market before the

holiday. These are all good news. So after a

combination of good news and compared with other high

liquid assets, the growth on iron ore might explain the market

was not super positive on the product. I mean just

compared to all the rest of our asset classes. Just following the

growth after headlines put out and digest by market,

I think it comes out of period of

second gas though which is the downside

risk. All right, so

similar question to last podcast, but do you think

the growth this time will be sustainable? As I mentioned, downside

risk. So I think the growth will be sustainable if we

go back to the fundamental side, which is the margin,

which is the low of

the year and also a seasonal low which would

give further limit on the production size of

steel. That is why we can't see a traditional business

even this year. The low margin condition lasts through

the entire 2024 h one so

far. On the other side, according to Lincoln

schedules, the arrivals of iron ore would also peak

in May. At the same time, iron ore inventories were

at a seasonal high level. So oversupply is a basic

tone of iron ore market in May. So in general

iron ore is slight bearish on fundamental

perspective and also overvalued correlate from

my perspective. All right, well thank you so much. For that

update Hal and now let's talk about

fuel oil with the people's broker Archers middle. Archie, thank you

very much for joining us again. How are you doing today? Yes, all good,

all good. Glad to be back. The friend month, brent crude

futures actually fell. I think it was around like six to 7%

on the week last week. Of course. Are we still looking at some

sort of like depleting war premium? Are there other factors to play any

geopolitics for your international relations geek like

myself? Yeah, for sure. I mean, it's still

very much a decrease in the war premium that I spoke about on

the last episode two weeks ago. To kind of follow on from that, I

mentioned in that podcast that some analysts at Bloomberg had estimated like a

rather extreme $25 war premium, whereas other analysts

in the market are looking more at a kind of five to ten dollar war

premium, which I think is slightly more realistic. And yeah, again, look, as

ceasefire talks continue and escalation

kind of subdues or steadies, if you will.

There is certainly that factor of this war premium that had already been priced in

by the market sliding. There are other factors indeed that have kind of come about

this week that are really affecting the price as well. I mean, mid week last

week we had the US EIA data, which

is the data that shows the oil and products

inventories in the US. They had a massive kind of surprise build of

over 7 million barrels in the crude. I think estimations were well off.

And that kind of snowballed, acted as a catalyst for the,

for the Brent cruise. Well, it fell about 3% on the day and

certainly snowballed into about 7% fall on the week. And that's been

reinforced again last night by the API data

that again showed a smaller build of crude, which is basically just kind of

suggesting that there is kind of ample supply in the physical market, which

again is adding that downward pressure to the future.

Yeah, so off the back of the API data that came out last night, I

mean, Brent's off 1% on the day already. And another thing I

suppose, to mention is the US dollar has been getting

stronger kind of from the middle of last week. We've seen an uptick in the

US dollar. When the US dollar gets stronger. Holders of other currencies against

the dollar have less buying power for crude because it all trades in dollars.

We often see an inverse relationship there. When the US dollar strengthens, crude comes off

because less people are buying it. Another point to mention that's definitely had a

play yesterday or the day before when the news came out is russian

deputy head came out with a statement saying, look,

we are prepared to adjust oil production if

needs must. And he was actually talking from the opposite direction that OPEC have been

going recently. And he was basically saying if oil production needs to be increased, we

can do it. That's not to say they have done that yet, or they will

do that. But just a headline alone did really influence the market with that

kind of feel of that flurry of more supply and again added that downward pressure.

So, I mean, you know, the front branch crude futures have gone from kind of

highs of $90 or just over $90 last month, and now we're trading

around the $82 barrel level. So, yeah, certainly seeing some weakness in the

market there. Okay. We will see how the story unfolds and especially like

the whole OPEC Russia relationship continues.

Yeah. So that's another very interesting aspect. So thank you

very much, Arshi, for joining us today. Thank you, sir. And I wish you a

nice day. Now, on the

25 April FIS were down in Athens hosting a

seminar on shipping risk management. From what we've learned, this

seminar has been a success. But to tell us a little about it,

we have Fiss consulting manager Hugh Taylor, who organized

it and gave a presentation on risk management. Hugh, thank you very much

for joining us today. Could you start by giving us maybe some background

on why you held that conference, what it was about and how it

went? My job is to help clients with topics such

as shipping's admission into the EU ETS, the emissions trading

system, and how to set up for and trade

derivatives. More often than not, I find myself working with greek

clients, which is perhaps no surprise, given they own about

a quarter of the global fleet. In fact, in a list

recently published by the EU, a list that assigns shipping companies

to an EU country, there are over 750 companies

assigned to Greece, which is roughly double the number of that

of the second place country, which in fact only has so

many companies assigned to it, as many non EU countries

are actually registered to it because they just call there for

their fuel. We wanted to head down there to teach some of these

shipping companies about ways that we could help them manage some of their key

risks, their costs of freight, fuel and carbon.

So our CEO, John B. Opened up with a section on

forward freight agreements, as he often does. He talked about the

makeup and size of the FFA market yesterday, today and

tomorrow. It was great as ever to get John's

perspective as he's been involved with the FFA industry since the

early days and even negotiated some of the first trades back in

the late eighties. One striking statistic

to come out of John's segment, which I heard many people

repeating during the drinks afterwards, was that although Greece owns

25% of the global fleet, it is responsible for only

about 2% of the freight derivatives market. Well, this

is very significant, but do you have any idea why

that is? I think there are many reasons. I've spoken

recently, in fact, with some of the biggest greek ship owners,

some of the biggest shipping companies in the world that do not

trade derivatives, and that seemingly as a principle,

they prefer instead to use like traditional risk management methods,

such as diversifying their fleets or

rotating into long term time charter markets,

which are more stable and index linked transactions.

These are indeed effective methods to fully

hedge. One would have to use also FFA and

fuel derivatives. In fact, almost all our medium sized shipping

clients outside of Greece use them extensively. One of the many

reasons that greek companies are opposed to

them seems to be a long running hangover from the financial

crisis, in the fallout of which many companies lost a lot of

money because they held OTC FFA positions with

counterparties that went bust due to the crisis. FFA are no

longer OTC. They're cleared on exchange. In fact, that change

happened back then. Yet many Greeks remain

marked by this time and refuse

to accept the post 2009 structures which have actually come a

long way. So going back to

the conference, was it only about this sticking point?

Oh no, not at all. That seemed to be a key

topic that emerged. But actually after Jon, we had an FFA

trader who gave us a glimpse of what it looks like from a practical

standpoint. He talked a lot about portfolio management. We then had

a marine fuels expert discussing many of the

new alternative fuels that have emerged recently and their

financial viability under the EU ETS and fuel, EU maritime.

We then finally had moved on to the EU ETs and we

had a talk on sort of key drivers within the EUA

market. And we also had a representative from Greece's EU

registry who offered practical advice and

considerations when opening and operating an EUA

account. Finally, I followed up with a brief

insight into sort of risk management trading strategy across

all three products. I also talked about how our consultancy helps

clients get set up to trade. Okay, so like, it looked like very

interesting, it was a very interesting conference and I guess that there were a lot

of questions. So what kind of questions were asked by the attendees

and what are the next points on the agenda? There were a few questions

were asked in the actual event, but following the event, we put on a sort

of drinks and canopies afterwards up in this nice bar on the 8th

floor. And yet we were approached by loads of

people, id say, particularly the younger

greek generation, the traders. They wanted to

learn more about a number of the topics from the day, but

particularly, id say, hedging using options. The FFA

options market has been growing really well in recent years, but

options are still very underused by shipping

players, particularly in comparison to other industries like

aviation. In fact, in my speech I gave an example of a structured trade

and fuel oil, which is actually a combination of options. I

also gave a real life example of a simple year long

simple hedge that uses an outright core strip. Anyway,

with regards to what's next. Yeah, we're planning to get back down there to

Athens to put on some classes on basic derivatives to answer

some of this demand, which is great, really, because I really love greek

salads. Yeah. So I'll be taking an evening class in Greek

and stocking up on the. Old sun cream that seems much needed in Greece.

Okay, thank you very much you for joining us today. Thanks Davide. Thanks

everyone. And that's it for this week.

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