Taal selectie

Shipping

Out of the doldrums

The SEA shipping index (covering all types of vessels) dropped 12.6% in May. Major bulk shipping companies lost 15.5% on average (on an unweighted basis), while our selection of stocks was down 12.5%. The major tanker companies shed 1% on average (also unweighted), as did our selection of stocks.

Graph 1 : Shipping stocks since end of October

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

Capesize bulker owners saw freight rates return to the levels that prevailed before the dam burst in Brazil earlier this year and the subsequent closing of iron ore mines, which took away some 5% of cargo from the Brazil to China route. Greater demand for coal, slower steaming, dry docking to install scrubbers and an increase in iron ore exports out of Brazil (albeit still far below normal levels) did the trick. One-year time charter rates are thus now back to a healthy USD 15,000-18,000 /day range (a Capesize vessel requires ca. USD 12,000 /day to break even, before company overhead costs). In the Panamax segment, one-year time charter rates have also strengthened, currently standing in the USD 11,000-12,500 /day range.

This positive development in freight rates, despite the Brucutu mines in Brazil still being offline, indicates that the market for larger bulkers is relatively tight.

The order book remains modest and, with IMO 2020 rules to come into effect in only seven months, slow steaming looks set to continue (compliant fuel will be much more expensive and consumption decreases by a multiple of speed). After several (very) difficult months, the picture is thus looking brighter, even before taking into account the multi-year low level of Chinese iron ore reserves, due to increased steel production and the current impossibility to obtain sufficient imports from Brazil.

In this context, the fact that shares of publicly traded bulk shipping companies lost ground in May is difficult to comprehend.

The low season for tankers, due to annual maintenance at the big refineries in preparation for the shift from producing mainly (wintertime) heating oil to that of gasoline for the upcoming US driving season, is now coming to an end. Spot rates remain low in the dirty sector (crude oil) but have started to increase in clean trade. Within a couple of weeks all refineries will be running at full speed, also in order to produce enough low sulphur fuel oil and marine diesel oil to meet the shipping industry’s need for IMO 2020 compliant fuel. This will drive peak demand for crude oil transport (i.e. what goes into refineries) and even greater demand for the transport of petroleum products, since the new compliant fuel will have to be shipped from the Gulf of Mexico to all major bunker stations across the globe. Stock prices of publicly traded tanker companies were flattish last month but we now expect them to move higher through the end of the year – provided of course that President Trump remains reasonable on the trade war front.

Update : 06/2019

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