Drewry Maritime Financial Insight – April 2021 -

Drewry Maritime Financial Insight – April 2021

Container shipping: The fundamentals of container shipping companies remain strong with liners set to enjoy a prolonged cycle of profitability extending into at least the next couple of years. Lines going back to deeply loss-making even in a down cycle looks unlikely as was evident in 2Q20 when they found a way to be profitable despite plunging demand. Port congestion and container equipment shortages will remain undesirable factors throughout most of 2021, albeit lessening in degree as the months pass by. This will further restrict the availability of capacity and lead to substantially higher average spot and contract freight rates. With higher contract rates locked in, another highly profitable year is virtually guaranteed, and we think the industry will reset profitability records once again in 2021, despite several opex headwinds in the form of higher fuel cost and charter rates. Cosco shipping and Matson have already reported their preliminary 1Q21 numbers which shows an unprecedented rise in profits.

Port and terminal operators: After reporting three consecutive quarters of average valuation increase in FY20 (4Q20: 18%, 3Q20: 4%, 2Q20: 14%, and 1Q20: -38%), theport sector maintained an upward trajectory in 1Q21. The 10 ports stock covered by Drewry posted an average gain of 10% in 1Q21 with Chinese port companies’ leading the pack (up 15%). Barring ICTSI (-4%) and Westports (-5%), all other companies posted positive returns. Although higher bond yield made investors fearful, a massive stimulus package from the developed nations, and central bankers’ accommodative stance over short-term inflation made the situation better.

Dry bulk shipping: Dry bulk shipping has been on a dream run in the past six months. Shipping rates and vessel values have improved significantly almost every week, amid talks of what maybe the beginning of the next supercycle. While the resurgence of COVID-19 cases poses a threat to the shipping industry and economy in general, we expect strong 1Q21 results for almost all operators, including spot market and long-term fixture players. The rising demand for infrastructure and higher tolerance for inflation may see the current boom play well into 3Q21, an expectation which is currently supported by the FFA trading desk.

LNG shipping: DMFR LNG shipping index has surged by 17.6% YTD (as of 15 April 2021) primarily due to 56.7% increase in Gaslog, 26.4% increase in Teekay LNG and 28.6% increase in Flex LNG share prices. While Gaslog LNG’s stock gained on the announcement of BlackRock’s Global Energy & Power Infrastructure (GEPIF) acquiring 45% of its outstanding shares and subsequent delisting, Teekay LNG’s stock benefited from the 15% increase in dividend on an annualised basis. Flex LNG recently signed time charter contracts for four LNG vessels, with an option for a fifth LNG vessel.

LPG shipping: We expect LPG shipping rates to recover in April after hitting the bottom in March. This expectation is validated by limited vessel availability, increased fixtures and a possible demand surge in Asian markets. A large number of vessels are scheduled for dry docking, creating a possible bottleneck in vessel supply. The expected recovery is already underway, as spot rates that reached a low of USD 27.86 per tonne in the first week of March are now testing with USD 50 per tonne in the first week of April.
Crude tanker shipping: Crude tanker shipping stocks were on the rise from the start of February, which led to a 14.9% gain in the Drewry crude tanker index in 1Q21. The index comprehensively outperformed the key market indices – Dow Jones Industrial Average (DJIA) and S&P 500, which also gained 7.8% and 5.8% over the same period. Rising spot TCE rates and optimism on the back of vaccine rollouts in several major economies supported stocks of crude tanker shipping companies. However, spot TCE rates on key routes are expected to slide due to a rise in new COVID-19 infections and weak summer demand in 2Q21, which will put pressure on crude tanker stocks over the next three months.

Product tanker shipping: Drewry product tanker index rallied by 32.8% in 1Q21 primarily on account of a surge in spot TCE rates on key trading routes across vessel class due to improved seasonal demand, and the blockage of the Suez Canal in late March. The second-hand asset prices of a five-year-old MR vessel moved up by 5.8%, and that of a 10-year-old MR also increased by 8.8% over the same period. The product tanker market appears to bottom out, and we expect gradual recovery over the next year. However, reports of more contagious variants of the virus and a sharp increase in new COVID-19 infections in several countries could curtail the pace of recovery in oil demand in the next year.
Source: Drewry Maritime Insight

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