Tanker, Tailor, Soldier, Fly

People may be forgiven for thinking that the last seven days was a slow news week, as the biggest headline grabber was the two-minute appearance of a fly on the head of US Vice President Mike Pence. This has launched a flurry of activity with Jim Carrey playing the fly on SNL and cultural articles about historical depictions of flies in art. Surely there is real news lurking in the shadows, awaiting the right time to strike.

The secret services here at FIS have been keeping their ears to the ground and using our network of agents to keep an eye on these developments.

Of course, the big focus on the minds of many is the US election. Biden vs Trump, the electoral equivalent of having to choose between watching paint dry whilst listening to Spice Girls’ greatest hits on a loop for an eternity, or a bee sting that never stops itching.

Polls have Biden ahead, but all is to play for in the last few weeks, as people start to make up their minds, and the unique impact of the Electoral College comes into play. This of course has people thinking what the implications for the commodity market will be and whether the policies of the world’s largest economy could shift to a Democratic agenda or stay with Trump’s.

A Biden victory would focus minds on his green agenda, the consequences for the shale industry and future of American power, but bolster hopes of constructive engagement through international organisations and less disruptive bilateral behaviour. Trump, on the other hand, would likely be more amenable to the plight of American oil and continue his crusade to strike new deals on a country by country basis, causing more volatility depending on the progress of those negotiations.

As the election draws closer arguments over the next American stimulus package continue, with the House Democrats bringing to the floor a revised $2.2tn plan. There are mixed signals coming form the White House over whether any sort of deal will be agreed before the election, with the President flitting between cancelling all talks and offering a $1.8tn compromise. A deal could give hope to markets across the board, but the likelihood of agreement seems to be fading by the day.

Markets-wise, last week we had a bit of a bounce on crude after Trump left hospital post treatment for Covid-19, with Brent rising from below $40, up to a high of $43.50, before cooling off into this week. News outlets have been focusing on the lack of compliance by certain OPEC+ nations, but this seems more like an attempt to fill the newsfeeds with words rather than anything fundamental affecting the market.

After having talked about the HSFO time spreads moving into backwardation several weeks ago, it seems that the tables have turned, as VLSFO is now the one experiencing increased demand and therefore a backwardated structure in its front time spreads.

The Iron Ore market continues to ignore everyone else (and probably has zero interest in the US election, refreshingly) as it continues to chalk up numbers healthily above the $100 mark. The indexes moved up from a mid-week 135.40 and 123.15 – for the 65% and 62% respectively – towards the end of the week. An age-old saying comes to mind with this iron market currently: what goes up, must come down. When, how and to what level are all matters of intelligence that even the best secret agents couldn’t tell you.

Dry Freight had a brief renaissance last week with mid-week indexes week-on-week being up some $11,000 per day. This wasn’t to last as the end to the week showed the market’s famous volatility and it came off hard, pushing Cape spot below the $30,000 mark. Much of the fortunes of the dry market will rest on the continued increased production from Vale, but the question that needs answering (and indeed has big repercussions for iron ore) is how long can the Chinese keep importing at these current levels? Once that stops, even a James Bond film level of carnage might not be able to turn it around.

Followers of the Tanker market may actually have more entertainment with the Pence fly video, as market languishes at low levels on TD3C and not too much to discuss on other routes. Despite all the hurricanes and suppressed oil demand, exports remained strong from the U.S. to China. While the Middle East has been plagued with OPEC supply issues seeing TD3C (Arabian Gulf – China) routes hitting the bottom and the U.S. route TD22 (US-China) has been relatively stable, with TCE values for TD22 at a $10,000 per day premium than those of TD3C.

The AFFA market is trying to emerge from the ashes of the Covid-19 crisis, but is resembling a geriatric phoenix, rather than one instantaneously bursting into life. Routes almost across the whole board saw increases and there are forecasts that the need for second wave distribution of vaccines or more PPE could help bolster rates into the end of the year. Yet this old bird is going to probably need a lot more the get things going and that will take time.

Finishing the status report with Fertilisers, urea prices firmed week-on-week like an underripe avocado for the 8th of October index print on bullish sentiment ahead of India’s latest tender which closed on the 9th. Indexes for Nola, Brazil, Egypt and AG urea were all up week-on-week, but their estranged cousin, Phosphates, were down slightly, demand is cooling in the physical for Brazil MAP, leading to an index drop, but overall, we have had a good move upwards in Ferts prices.

If you hate politics, you are going to hate the next few weeks, but come the start of November we will emerge blinking emphatically into a new world … but there will still be a need for fly on the wall reporting.

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Source: Freight Investor Services