Taal selectie

Shipping

Out of the doldrums

The SEA shipping index (covering all types of vessels) dropped 18% in January, with major bulk shipping companies losing an average 28.2% (on an unweighted basis) and their fellow tankers (transporting crude oil and petroleum products) down 29.9% (also unweighted).

Graph 1 : Shipping stocks since end of October 2018

bulkersDSX, SBLK, SALT and GOGL equally weighted. Source : Bloomberg

Spot freight rates (single voyage) for bulkers continued to plummet in January, falling even below operating costs for some types of vessels and routes.

One-year time charter rates also retreated further, to USD 14,750 / day on average for Capesize vessels (vs. ca. USD 16,300 in December and USD 20,600 in September) and to USD 10,000 /day on average for Panamax vessels (vs. ca. USD 11,500 in December and USD 13,000 in September). This unexpected further sharp drop in freight rates, particularly in the spot market, was triggered by the outbreak of the Chinese coronavirus and subsequent shutdown of 16 cities, to contain its spreading. An non-negligible portion of the Chinese economy has come to a virtual standstill, weighing heavily on iron imports and forcing Capesize vessels that operate in the spot market to accept freight rates at or even below operating costs, or else remain idle.

Prices of new builds and second-hand vessels remained more or less stable (suggesting that ship owners expect the market to improve again in the near future), while scrapping costs are moving back up after a weak quarter.

The huge year-to-date correction in dry bulk shipping stock prices seems exaggerated – and is not consistent with the cash flow generated by these companies, nor the value of their fleet.

In the tanker market, freight rates in both the “dirty” (transport of crude oil) and “clean” (petroleum products) segments also fell substantially, following three exceptionally strong months, but remain way above the breakeven level. The dent to Chinese economic growth from the coronavirus is weighing on refinery output and as such, of course, also on crude oil demand. With Chinese refineries running at only half their capacity (they normally run at ca. 2/3 of their capacity during the Chinese New Year period), local crude inventories have surged. This, together with the lifting of the US sanctions against the Chinese COSCO tankers (increasing available tonnage in a low demand environment) is the main reason for the collapse in spot rates. But we view this situation as temporary. Once the coronavirus is under control and China returns to normal business, demand and freight rates will move back up, alongside the valuations of publicly listed tanker companies.

Update : 02/2020

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