Shipping stocks take another hit, crashing double digits
Monday was a tough day on Wall Street, but particularly painful for owners of shipping stocks, which fell far more sharply than the broader market. Concerns about the Chinese economy, oil demand, Fed tightening and inflation contributed to one of the worst trading sessions of the year for shipping names. From tankers to dry bulk to containers, double-digit falls were widespread.
Even so, shipping stocks – typically micro-cap stocks traded by retail investors – still outperform broader equity indices and inland shipping stocks year-to-date (YTD).
Container Transport Actions
Container lines remain on track for their best year ever in 2022, given much higher contract rates and still high (albeit moderate) spot rates. Container ship lessors are also on track for a record year, locking nearly all of their vessels on charters at historically high rates.
On Monday, shares of container line operator Zim (NYSE: ZIM) fell 10%. Zim’s share price is now back to where it was at the start of the year. Across the container sector as a whole, much of the 2022 gains have been lost.
Global Ship Lease (NYSE: GSL), one of the companies that lease container ships to ocean liners, said Monday its first-quarter 2021 net profit rose 1,571% year-on-year. He now has $1.67 billion in revenue locked in through charters. And yet, after Monday’s drop, GSL’s stock is down 7% year-to-date.
Crude Oil Inventories
The price of crude oil fell 6% on Monday after news that producer Saudi Aramco was cutting prices.
Among tanker owners, the stock price of Tsakos Energy Navigation (NYSE:TNP) fell 16%, Nordic American Tankers (NYSE:NAT) 15%, Frontline (NYSE:FRO) and Teekay Tankers (NYSE:TNK ) by 13%, Euronav (NYSE: EURN) 12%, International Seaways (NYSE: INSW) 11% and DHT (NYSE: DHT) 10%.
Tanker spot rates remain extremely low, especially for larger vessels.
Clarksons Platou Securities has priced Monday’s spot rate for very large modern crude carriers (VLCC; tankers that transport 2 million barrels of crude) at just $8,500 a day – less than a third of the breakeven rate estimated from Clarksons for a five-year VLCC of $33,000 per day.
Crude oil tanker inventories posted gains earlier this year despite low rates, driven by optimism about a future recovery. But with Monday’s plunge, most crude oil names have given up much (and in some cases all) of their year-to-date gains. VLCC owner DHT is now down 3% year-to-date.
Inventories of petroleum products
The pricing environment for tankers carrying petroleum products such as diesel, gasoline and jet fuel is completely different from that of crude tankers. As buyers jostle for refined products, product carrier rates are soaring to multiples above the break-even point. “The benefits from here are immense,” said Evercore ISI marine analyst Jon Chappell.
Clarksons has set spot rates for modern LR2 product tankers — which are about half the size of VLCCs — at $65,000 a day starting Monday, more than seven times VLCC revenue.
However, some of the highest spot rates in the past decade did not protect tanker stocks on Monday. Shares of Ardmore Shipping (NYSE: ASC) fell 15%, Torm (NASDAQ: TRMD) 11% and Scorpio Tankers (NYSE: STNG) 10%.
Year-to-date gains for commodity tanker stocks remain very high: even with Monday’s pullback, Scorpio is still up 87% year-to-date, Armore 77%.
To put that into perspective, the Dow Jones Transportation Average is down 10% year-to-date, the Dow Jones Industrial Average down 11%, the S&P 500 down 16%, and the Nasdaq Composite Index down 22%.
LNG maritime shares
The war between Ukraine and Russia has increased the demand for maritime volumes of liquefied natural gas (LNG). As Europe seeks to wean itself off the Russian pipeline, it must replace lost pipeline volumes with maritime imports, where possible. The promise of higher future European demand helps new export liquefaction projects secure financing.
Despite this, LNG shipping stocks fell by double digits on Monday: Flex LNG (NYSE:FLNG) by 11% and GasLog Partners (NYSE:GLOP) by 10%.
Dry bulk stocks
Dry bulk spot shipping rates are on the rise. According to Clarksons, spot rates for Panamaxes (bulk carriers with a capacity of 65,000 to 99,999 deadweight tons or DWT) were $28,600 per day on Monday. Supramax rates (60,000 to 64,999 DWT) were $30,000 per day. Panamax and Supramax are at decade highs for this time of year. Rates for large bulk carriers known as Capesizes (180,000 DWT) have lagged since the start of the year, but jumped 17% on Monday to $26,400 per day.
Despite rising spot rates, shares of Eagle Bulk (NASDAQ:EGLE) fell 13% on Monday, with Grindrod (NASDAQ:GRIN) down 11% and Globus Maritime (NASDAQ:GLBS) down 10%. %. Other dry bulk shares were down mid to high single digits.
Dry bulk shares are still on the rise since the beginning of the year: Golden Ocean (NASDAQ: GOGL) by 35%; Eagle, Grindrod and Genco (NYSE: GNK) 29%; and Star Bulk (NYSE: SBLK) by 22%.
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