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Maritime Financial Research

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Maritime Financial Insight - Jul 21

July 2021

  • Container shipping: The boom in the container market is continuing with no sign of abatement in the near term. Container freight rates on some routes are close to USD 13,000 per 40-foot container, which almost guarantees record profitability for carriers this year. Booming freight rates have ensured that stock markets remain strong, and many investors are unsure whether to book profits or stay invested. However, if the recent disruption at Yantian Port is to be considered, port congestions, logjams and a higher freight as an outcome could be a recurring theme until 1H22. While the blockage of the Suez Canal is a rare likelihood, the risk that further outbreaks of Covid close to major hub ports remain ever-present, particularly given the prevalence of new viral variants.
  • Port and terminal operators: Gaining strength from global vaccination drives and robust growth in international trade, Drewry’s Port sector index continued surging. The index in 2Q21 grew by 9.6% QoQ (vs 1Q21: 8.9% and 4Q20: 16.4%) on the back of higher returns posted by global/international terminal operators vis-à-vis their more geographically constrained regional terminal peers. Despite the optimism, there remains a high degree of uncertainty attached with the spread of new variants of the virus (Delta and Lambda) and a sooner-than-expected interest rate hike – both of which can take a toll on economic growth prospects.
  • Dry bulk shipping: Dry bulk shipping has revved up in the past six months. A market reminiscent of the bull run seen in 2005-2008 has prompted existing operators to expand their fleet and new operators to step in. London saw its first shipping IPO in May 2021 through Taylor Maritime. The main driving force behind the rally: China. The country’s insatiable hunger for commodities is expected to continue, which will boost the global dry bulk trade. Meanwhile, we remain upbeat about EU’s and Asia’s coal imports. The commencement of grain season in Europe and Russia is likely to aid the demand for Panamaxes and Supramaxes in the continent and the Black Sea.
  • LNG shipping: DMFR LNG shipping index rose by 20.5% YTD (as of 15 July 2021) primarily due to 56.5% increase in Flex LNG, 25.8% increase in Teekay LNG and 24% increase in Golar LNG share prices. LNG shipping stocks have benefited from recent improvement in LNG shipping prospects with spot LNG shipping rates more than doubling at the end of June compared to March end. Flex LNG stock has been supported by recent time charter announcement for six of its LNG vessels, increase in dividend and continued share buyback program.
  • LPG shipping: We expect LPG shipping rates to consolidate further over the next month. Low fixtures and narrow US-Asia propane price arbitrage have contributed towards a lower tonne-mile demand. Subsequently, there is a long list of open vessels along with possibilities of relets that is likely to keep shipping rates under pressure in the short term. On the other hand, new orders continue to pour in, causing concerns over long-term earnings for vessels. So far, 72 vessels have been ordered in 2021, compared to just 13 in the entire 2020.
  • Crude tanker shipping: The combined market cap of crude tanker shipping stocks under our coverage moved up by 9.5% in 2Q21 despite a decline of 1.8% in June, and outperformed key market indices such as S&P 500 and Dow Jones Industrial Average (DJIA). Demand optimism amid rapid vaccination drives in major economies; easing restrictions in the US, Europe and India; resumption of economic activities; and a decline in inventories supported the uptrend in the market. However, new variants of the virus are of concern and could slow the pace of recovery in oil consumption and delay the expected recovery in the crude tanker market.
  • Product tanker shipping: DMFR product tanker index moved up by 7.3% in 2Q21 primarily on account of the 19.4% surge in Scorpio Tankers’ (STNG)’s stock price supported by an uptick of 1.3% in Hafnia, even though stock prices of the remaining constituents of the index declined. The rally in STNG’s stock price is supported by a double-digit increase in asset prices of LR2s. Second-hand values of five-year-old LR2 vessels jumped by 16.7% in 2Q21 and those of 10-year-old LR2s surged by 14.9% over the same period as asset prices of Aframaxes also improved amid strong demand for crude oil and firmness in spot earnings. However, asset prices of five-year-old MRs remained flat over the past six months.

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6

$6bn: The combined value of container shipping industry investments we have advised on since 2010.

20

$20bn: The value of financing projects we have provided commercial due diligence advice for in port M&A since 2010.

54

The number of countries in which our advisors have completed assignments since 2005.

400

Our advisors have been involved in over 400 port assignments over the past 10 years.
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