You could be forgiven for unloading your tanker stocks — the tanker market just suffered its worst six months in three decades. But container shipping and dry bulk stocks? Container shipping remains at an all-time high. In dry cargo, spot rates for midsized bulkers continue to top $30,000 per day.
And yet, shipping stocks have fallen across the board for the past three weeks. June 25 was the turning point.
Jefferies analyst Randy Giveans told American Shipper, “There’s nothing special about June 25, the recent peak, but there was massive trading liquidity to close out the second quarter and then to start the third quarter. [There has been] a combination of profit-taking and ‘quick hands’ selling [by short-term holders] as the economic recovery is taking longer than some expected.
“I think people are overly focused on commodity pullbacks — like with lumber — the Delta variant, the 10-year [Treasury] below 1.4% and questions about the economy,” said Giveans.
“It’s all macro-driven,” he opined. Stock pricing has fallen in “pretty much the entire shipping universe, regardless of subsector. And more broadly, anything cyclical and value-oriented has pulled back over the last three weeks, despite fundamentals staying intact.”
Evercore ISI analyst Jon Chappell told American Shipper, “There is obviously factor rotation in play for the broader market. The reflation trade wobbled in the last few weeks and that includes all things shipping, commodities and transports, regardless of sector-specific rates or outlooks.”
At this time last year, market watchers were talking up a “rip off the Band-Aid” scenario wherein tanker rates would be extremely weak through the autumn as floating storage rapidly unwound, after which rates would recover. Floating storage was largely unwound by February, but tanker owners continued to bleed cash.
After that, it was predicted that OPEC+ production increases would start boosting rates in May. That didn’t happen either.
According to new data from commodity intelligence company Kpler, daily Middle East seaborne crude exports averaged 1.2% lower in May-June than in the first four months of the year. Average export volumes from the Middle East in the first half of this year were down 2.7 million barrels per day or 15% from 1H 2019, pre-COVID.
Tanker stocks — in both the crude and product segments — started the year strong, with investors looking to get in ahead an expected rate recovery when vaccines allowed more travel.
Several tanker stocks have just given back a large portion of their 2021 gains. Shares of Nordic American Tankers (NYSE: NAT) and International Seaways (NYSE: INSW) are now back in the red year to date.
Over the past three weeks, shares of Euronav (NYSE: EURN) and Frontline (NYSE: FRO) have fallen 10%, DHT (NYSE: DHT) 13%, Nordic American Tankers 21%, International Seaways 21%, Teekay Tankers (NYSE: TNK) 22% and Scorpio Tankers (NYSE: STNG) 32%.
The pullback in previously soaring stocks of container lines and container-ship leasing companies coincides with a period of historically strong — and continually strengthening — fundamentals.
For container-line operators, spot freight rates remain at all-time highs. Early reports from Asian carriers as well as Hawaii-based Matson (NYSE: MATX) indicate that Q2 2021 profits will break records.
On the ship-owning front, asset prices are surging. And as for charters, Alphaliner reported a new high-water mark for rates this week: The 5,042 twenty-foot equivalent unit CSL Santa Maria was chartered by BAL Container Line for three months at an astonishing $160,000 per day.
Nevertheless, shares of most liner operators and ship-leasing companies fell over the past three weeks.
Since June 25, shares of Atlas Corp (NYSE: ATCO) are down 10%, Costamare (NYSE: CMRE) 14%, Danaos Corp. (NYSE: DAC) 21%, Global Ship Lease (NYSE: GSL) 22%, ZIM (NYSE: ZIM) 23% and Euroseas (NASDAQ: ESEA) 30%.
Dry bulk shipping
Dry bulk shipping had its best first half in a decade.
Time-charter equivalent rates for Capesizes (bulkers of around 180,000 deadweight tons or DWT) closed at $28,542 per day on Friday, according to brokerage BRS. That’s well below highs of $43,000 per day in early May, but still well in the black (versus cash breakeven of around $18,000 per day). Forward freight agreements (FFAs) for Q4 2021 point to continued strength, trading at $33,375 per day on Friday.
In the smaller size categories, rates remain near 10-year highs for Panamaxes (65,000-90,000 DWT), at $31,383 per day on Friday, and for Supramaxes (45,000-60,000 DWT), at $30,526 per day. FFAs for Q4 2021 and later rose Friday for both Panamaxes and Supramaxes.
As with tanker and container shipping stocks, May 25 was a turning point, with dry bulk stocks giving up some of their triple-digit year-to-date gains.
Recent pricing moves of the Breakwave Dry Bulk Shipping ETF (NYSE: BDRY) may offer evidence for analysts’ argument that non-shipping factors are weighing shipping stocks.
As previously explained to American Shipper by Breakwave Advisors founder John Kartsonas, the BDRY exchange-traded fund buys dry bulk FFAs, and “any ETF has to follow the performance of the underlying asset” whereas “the price of a shipping stock is related to things other than fundamentals, including the broader equity market.”
Over the course of trading on Thursday and Friday, the share price Safe Bulker (NYSE: SB) fell 6%, Eagle Bulk (NASDAQ: EGLE) and Star Bulk (NASDAQ: SBLK) 7%, Genco Shipping & Trading (NYSE: GNK) 8.5% and Grindrod (NASDAQ: GRIN) 14%. Over the same two days, the price of the BDRY ETF rose 6%.
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