Container shipping: Container shipping’s 1Q20 results were strong enough amid the coronavirus (COVID-19) pandemic as the industry found a way to be profitable in the middle of the ongoing crisis. Container shipping demand in some regions such as Europe and the US has started to recover, albeit mildly, as the global economy continues its tentative emergence from lockdown. Yet, this is not a return to normal, but it may only indicate the bottom of the trough. Meanwhile, carriers continue to take record amounts of capacity out of service as idle ships trend higher than ever, supporting freight rates.
Port and terminal operators: In 2Q20, the ample amount of liquidity injected by central banks world over has led the emerging equity markets to surge ahead and cover most of the losses they incurred in 1Q20. This has also widened the divergence between the robust stock performances and weak fundamentals. Cheap valuations also resulted in DPW opting for delisting with rumours rife that CMPorts is getting delisted as well. Even though COVID-19-related uncertainties continue to take a toll on the sector performance, ICTSI’s recent access to capital market shows the confidence investors still have in port stocks.
Dry bulk shipping: COVID-19 will have a severe impact on the demand and supply of dry bulk commodities as the economic activities, which have been halted due to the virus spread, will take some time to restart after the pandemic is contained. As a result, the demand for dry bulk vessels will contract 1.3% in 2020. Additionally, effective supply has increased because the incentive for slow steaming has reduced due to the abysmally low fuel prices. Risks for dry bulk charter rates loom large given the uncertainty regarding the duration of the pandemic, successful development of a vaccine and the response of various governments to deal with the situation.
LNG shipping: COVID-19 induced lower LNG demand is resulting in weakening LNG trade with many LNG cargos being cancelled in the US. LNG supply glut and feeble LNG trade are weighing on spot LNG freight rates. Share prices of key LNG shipping companies have declined 36.8% YTD but those with their fleet on long–term charter have done well with Nakilat stock price up 14.5% YTD. On a positive note, LNG stock prices have been relatively resilient in the last one month and have declined only 2.6% on an average as spot LNG freight rates seem to have found a floor.
LPG shipping: The LPG shipping sector has fared better than its counterparts despite the virus affecting the energy demand. We still retain our positive outlook for the sector for the period between 2020 and 2024, supported by robust annual growth of 3% in the LPG trade during the period. LPG demand from the petchem industry is expected to suffer as petchem owners look to use cheaper naphtha as a feedstock instead of LPG. Meanwhile, petchem and ammonia trades will contract in 2020 due to weak demand amid oversupply. Overall, LPG trade is expected to grow at a low 0.8% in 2020.
Crude tanker shipping: Historic production cut by OPEC+ coupled with well shut-ins in the US played a key role in rebalancing the demand and supply of crude oil. Meanwhile growing oil demand with gradual opening up of economies also facilitated the inventory draw down from on-the-water crude oil stocks and eased the supply of tankers. The increasing supply of vessels and softening demand on account of production cuts led to a sharp correction in vessel earnings in May and June. As a result, the day rates of tankers on key trading routes nosedived across vessel classes in the past two months. VLCC earnings on Middle East-China (TD3C) plunged 92% to ~USD 20,100pd on 30 June from a hefty ~USD 250,000pd in mid-March. TCE rates on major trading routes are expected to slide further in 3Q20 across vessel classes, but we expect vessel earnings to recover with increasing demand for vessels in 4Q20 and 1Q21.
Product tanker shipping: Product tanker freight rates and asset prices have plummeted in the last one month as vessels supply has increased while global oil demand has been weak. We expect product tanker rates to continue to decline until 3Q20 on account of high vessel availability and weak product tanker trade. Recovery in 4Q20 hinges on the pandemic being contained or a vaccine being found.
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