Shipping stocks in the Red Sea as the broad stock market rises

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When dry bulk shipping rates are very high and someone tells you they’re “volatile,” to put it mildly: don’t be surprised if they fall off a cliff.

They fell off a cliff. On a positive note, the climber has yet to dive all the way to the valley. He is still hanging on the rocks halfway.

US-listed stocks of dry bulk owners followed rates lower on Tuesday – but it wasn’t just dry bulk stocks, even though they suffered the biggest losses. The stocks of tanker and container ship owners also fell. The marine stocks screen was a sea of ​​red, even as the stock market as a whole rose higher.

Dry bulk stocks

The prices of Capesizes (bulk carriers with a capacity of around 180,000 deadweight tonnes) are particularly volatile because they depend on Chinese demand for iron ore, now held back by the drop in steel production.

“Cries of ‘Timberrrrr’ could be heard in the Capesize market today as rates collapsed rapidly everywhere,” a report from London-based brokerage firm Thurlestone Shipping said on Tuesday.

Clarksons Platou Securities reported that Capesize spot rates fell to $ 27,200 per day on Wednesday. For one thing, it’s still above the 2016-2020 average for this time of year of around $ 20,000 per day. On the flip side, 2016-2020 has been a terrible half-decade for dry bulk, and current spot rates have fallen from a high of $ 87,000 per day just five weeks ago.

Dry bulk stocks have posted triple-digit gains over the past year, but peaked in late September. Asked about the recent pullback in these stocks, Jefferies analyst Randy Giveans told American Shipper, “If rates hadn’t climbed until the 1980s, they probably wouldn’t have gone to 30. a good rate. I think everyone is myopically looking at the forward curve and spot rates, but time charter rates are still decent and asset values ​​are still very good.

The futures curve, as seen in the price of Dry Bulk Freight Forward (FFA) agreements, has taken a hit. In early October, the Capesize FFA Q1 2022 contract was trading at around $ 28,000 per day. On Tuesday, it had fallen to $ 15,100. Brokerage BRS wrote: “Given the magnitude of the decline, there is no doubt that the decline was exacerbated by the ending of long positions and the liquidation of portfolios.

Giveans commented on the derivatives action: “When the FFA hit $ 28,000, everyone said, ‘Oh, that’s just the paper market. It’s not really a good determining factor for spot rates. Now everyone hangs their hats on the FFA curve. If this was a bad predictor for rates a few weeks ago, how can you have it both ways? “

Shares of the Breakwave Dry Bulk Shipping ETF (NYSE: BDRY) – an exchange-traded fund that buys FFAs – fell another 13% on Tuesday. It has lost almost half of its value from the October 6 high.

Golden Ocean (NASDAQ: GOGL) and EuroDry (NASDAQ: EDRY) shares fell 8%, Star Bulk (NASDAQ: SBLK) and Eagle Bulk (NASDAQ: EGLE) fell 7%, Safe Bulkers (NYSE: SB ) by 6%, Genco Shipping & Trading (NYSE: GNK) 5% and Grindrod (NASDAQ: GRIN) 4%.

Tanker stocks

Almost all tanker inventories also closed on Tuesday. Scorpio Tankers (NYSE: STNG) and Ardmore Shipping (NYSE: ASC) fell 4%; and Nordic American Tankers (NYSE: NAT), Tsakos Energy Navigation (NYSE: TNP), Torm (NASDAQ: TRMD) and DHT (NYSE: DHT) 3%.

Despite rising oil prices and reviving demand, there have been some negative headlines: OPEC rejecting calls to increase production faster, setback in negotiations with Iran due to new sanctions the United States, a drop in crude exports from Nigeria and a Chinese release of gasoline and diesel reserves.

Clarksons reported on Tuesday: “Sentiment has weakened in the Gulf of the Middle East. A broker noted that charterers were trying to break up the latest fact as the cargo remains thin on the ground. “

When asked why tanker stocks are under pressure, Evercore ISI analyst Jon Chappell told American Shipper, “I think for two reasons. One: stocks related to commodities are generally under pressure – see dry bulk and LNG [liquefied natural gas] – and two: OPEC is sticking to its guns, despite rising oil prices and pressure from the Western world. “

According to Giveans, “If you look at oil tanker stocks over the past two months, they have done well, much better than rates. The rates seem to have increased by 100%, but with what? From $ 5,000 to $ 10,000 a day? I think stocks have just taken a slight lead over rates and it’s an understandable pause. “

Container stocks – and the connection with China

Unlike tanker rates, container ship charter rates are near record highs. However, the shares of container ship rental companies, which performed exceptionally well in January-August, also fell on Tuesday. Euroseas (NASDAQ: ESEA) fell 4% and Danaos (NYSE: DAC) and Costamare (NYSE: CMRE) fell 3%.

Giveans argued, “It’s really similar to dry bulk. Yes, rates are going to be lower in containers in 2022 sequentially, but they are dropping from extraordinary levels. Container [ship leasing] the rates have gone up 72 weeks in a row and now they’re down 1% and some people think it’s the beginning of the end. Ditto for the container [freight] rates. SCFI [index] is a little lower, but we’re not going back to pre-COVID levels. “

The other possible reason for a pullback – which affects almost all shipping inventory – is China.

“Everyone is just correlating China and shipping,” Giveans said. “Because of the diesel reserves [being released] and the demand for crude for tankers, and obviously the demand for dry bulk is huge in China for iron ore and coal, and with containers coming out of China and factory production slowing down.

“So there is a ton of exposure across all shipments to China and Chinese economic development. Anytime you see macroeconomic issues, especially issues related to China, this is when you see sales. “
Source: Freight Waves by Greg Miller, https://www.freightwaves.com/news/shipping-shares-in-sea-of-red-as-broader-stock-market-rises


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