You Say Potato, I Say Potarto


Opinions. Everyone’s got them. Usually those with the loudest voices are those who have the least idea about what they are on about.

I’m sure you’ve been there around the Christmas table when one member of the family decides that not losing face in an argument is more valuable than peace and goodwill around the glazed Turkey, or for that matter the truth behind the issue.

There are the big questions of life: Is there a God? Why is the sky blue? Is cereal a soup? If a person has only one eye, are they blinking or winking? Is it color or colour? Would you rather fight 100 duck-sized elephants, or one elephant-sized duck? If an abandoned VLCC runs aground and no one is there to hear it, did it make a noise? Are politicians from the same universe as normal people or just emotionless cyborgs? These are just some of life’s great mysteries, many of which are only explained after long periods of study, and at times the same can be true of markets.

In many ways, opinion on developments around the globe have markets moving different markets in opposite directions. One of these developments is iron ore supply out of Brazil. with South America now the centre of the virus pandemic, countries like Brazil have been suffering economically from shut down and its implications including the closure of iron ore mines.

The iron ore market has taken this as a signal that the higher-grade Brazilian ore may be in shorter supply and has given that market the impetus to further push through that $100 mark (also known as the number at which the Financial Times takes notice). Vale, the biggest mining company in the region, has said that it is still committed to meeting its promised export production levels, but that seems as likely as completing a marathon in under 2 hours in shoes filled with concrete. We had a brief pause on prices a few weeks ago, but this market’s continued rise doesn’t look like its going to halt just yet.

The apparent contradiction has not been interpreted in the Dry FFA market as signalling lower production and therefore fewer shipments. Traders have been rushing to take tonnage, doubling the spot rate for the 5TC average to a heady $8055. The backlog of ballasters has also been cleared, which has given extra impetus to the market. Whether the news out of Brazil will impact rates significantly in the medium term is still something of a matter of opinion.

Oil meanwhile has suffered the confusing dichotomy of the extension of the OPEC+ cut agreement by another month, contrasted with the news that Saudi Arabia will not be continuing the extra cuts it had above the official cut agreement.

So bullish but not bullish, it might be bearish, or might be bearish later, or might not be as demand could be back and the cuts could be extended again, so your bullish could be my bearish now, but not later, maybe.

Throw in the news from the EIA which reported a 5.7 million bbl build in crude stocks, mix it together with the record Chinese crude imports and you have a real mess to try to unpick.

Which way are the markets going to move? Well, we can give some indications, some hints, some tips, but where things are going for sure we couldn’t say. If I did know, I surely wouldn’t be sharing that gold dust. So you might have your opinion and I might share mine. You might say potato and I might say potarto. Let’s call the whole thing off.

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Source: FIS (Freight Investor Services)



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