Taal selectie

Shipping

Out of the doldrums

The SEA shipping index (covering all types of vessels) gained 7.2% in June. Major bulk shipping companies rose 17% on average (on an unweighted basis), while our selection was up 14.9%. The major tanker companies rose 7% on average (also unweighted), with our selection up 9.3%.

Graph 1 : Shipping stocks since end of October

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

Spot market freight rates for Capesize vessels are back above USD 20,000 /day, a level not seen since the summer of 2018. One-year time charter rates are now at around 17,500 /day and rising. With the Brazilian Brucutu mine finally in production (it had been closed since the start of the year due to a dam burst) and Chinese iron ore inventories at lows since late 2016, traffic on the Brazil to China route is bound to increase markedly during the coming weeks/months.

In the Panamax segment, one-year time charter rates are still in the USD 11,000-12,500 range but Indian coal imports, together with a further surge in Chinese bauxite imports (mainly from Guinea), should drive them higher during the second half.

Despite this relatively favourable outlook for dry bulk transport, shares of publicly traded bulk shipping companies continue to lag real market trends and remain dirt cheap (especially in comparison to the same period last year, when freight rates and second hand vessel values were at very similar levels).

The low season for tankers, due to annual maintenance at the big refineries has come to an end. The latter are now increasing their runs and will very soon be producing at full speed, requiring greater crude input. The production of low sulphur fuel oil and larger quantities of marine diesel oil, in order to provide the shipping industry with IMO 2020 compliant fuel, will keep the refineries running at maximum capacity at least through next spring. 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 to all major bunker stations across the globe. On top of that, a large US East Coast refinery just had to be closed following an explosion, which means that the US will need to import gasoline from Europe – freight rates for medium-range product tankers have already been positively impacted. The market outlook for tankers remains very promising for the next 12-18 months at least, and we expect their share prices to continue to appreciate.

Update : 07/2019

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