‘Tis but a Scratch
One of the markets that has seemingly been stupefied by the outbreak and effects of the coronavirus outbreak has been iron ore. For weeks now it has been stuck trading a narrow range as if petrified of doing anything that constitutes a significant move or direction.
Prices have been stuck above the $80 level which is a strong support level for the market, something which looks like it will continue for a while. Through steadfast sentiment, and perhaps some prayers, despite high steel inventories and a shutdown of the China market, rates are holding.
Nothing so far has been able to put down this valiantly fighting market so far; let’s hope more impetus comes in terms of continued government support for construction from China to put some fundamentals behind the sentiment.
Oil, like the Black Knight from Monty Python is continuing to fight for its life despite being mortally wounded. I’m sure we were all amazed at the negative pricing that occurred the other week in a market that was on its last legs (something more out of something from the Ministry of Silly Trades than a real-life situation).
It still limps on though, recovering to the lofty levels of $30 on Brent even with large crude stock levels being reporting in the US. Fundamentals in the market are better described as ‘not as bad as we thought’ rather than necessarily positive.
The US stock levels reported yesterday were around 4 mil bbls lower than what was expected by the API, and also came in lower than expected the week before. Sentiment may have turned, but fundamentally you are still an armless knight trying to win a sword fight.
The freight markets on the other hand have been vanquished by the holy hand grenade of bearishness. The tanker market has been the one winner of the oil glut, as people sought to use vessels for floating storage, sending rates sky high.
The story now is the opposite, as the full front month rates on the TD3 route (Arab gulf to China) have lost over half its value from $32/mt on the 24th April to $10/mt yesterday.
In Dry FFAs, Capes have followed in a similarly dismal pattern to stand at $6257, the index down 20%, and the Jun contract down 22% to $7275. This has been caused by the continuation of poor market condition and also the releasing of ships into the market from shipyards now they have had their scrubbers fitted and perhaps faster steaming to chase what cargoes there are, with fuel oil much cheaper than predicted by month five of IMO2020.
But for many of the commodity markets the attitude has been that of the Black Knight. “Tis but a scratch” he claims. Clearly things are in a more dire situation than that, and hoping for demand to return, like a panacea for all our problems, does seem to be more wishful thinking than any meaningful plan on how to win a sword fight while bleeding from your shoulders…
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Source: Freight Investor Services (FIS)