Taal selectie

Shipping

Out of the doldrums

The SEA shipping index (covering all types of vessels) was flat in November. Year-to-date, it has gained 17%.Major bulk shipping companies rose an average 1% (on an unweighted basis) over the month, while their fellow tankers (transporting crude oil and petroleum products) were up 2% (also unweighted).

Graph 1 : Shipping stocks since end of October 2018

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

One-year time charter rates also retreated in November, to USD 17,500 /day on average for Capesize vessels (vs. ca. USD 20,500 in October) and to USD 11,500 /day on average for Panamax vessels (vs. ca. USD 13,000 in October). This correction was unexpected in what is usually the strongest period of the year for bulk shipping. Weaker than expected iron ore (Brazil to China) and coal (South Africa/Australia to India) shipments weighed on freight rates. That said, second-hand bulker values remained flat.

With numerous vessels still scheduled for dry docking (to install scrubbers), available capacity of dry bulk vessels will likely remain tight well into 2020, assuming demand proves at least stable and a sufficient number of older vessels are scrapped (6.7% of the fleet is over 20 years old and equipped with neither scrubbers nor a ballast water treatment system).

In the tanker market, the party continues, especially for larger vessels in the dirty segment (transport of crude oil). Spot rates for VLCCs (Very Large Crude Carriers), Suezmax and Aframax vessels are very high and tanker owners will probably record their best quarter in a decade.

Given the considerable number of large tankers in, or heading into, dry dock for scrubbers to be installed, and with refineries working at full speed to produce IMO 2020-compliant low sulphur fuel oil and marine gas oil, freight rates will remain strong for the next couple of months. Product (“clean”) tankers have now joined the party, with spot freight rates hitting multi-year highs. The shift of some long- and medium-range product tankers into the “dirty” segment reduced the available capacity to transport “clean” product, explaining the more than doubling of freight rates (even tripling in some regions) over just a couple of weeks.

This very favourable situation has, strangely enough, not yet been noticed by the investment community. Their sole focus seems to be on President Trump’s trade war with China, which means that they might be very surprised when tanker companies report their Q4 2019 results next January/February.

Update : 12/2019

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