75% of maritime bonds have fallen in value in the first half of 2018
Bondholders have seen losses in the first six months of the year. A staggering 75% of bonds in our analysis (more than 50% under our coverage) have fallen in value during the first half of the year. The cause of the losses in the first six months was largely attributable to the rising Treasury yields especially for the USD denominated bonds. Two year US treasury yields were on a rally and touched the 2008 level of 2.5% while ten year US securities yields climbed to nearly 3%. The market’s weakness in container shipping and ports that form the majority of our sample data both in terms of number of issuances and USD-equivalent value was also a major factor of the poor performance for the first six months of the year.
Players with diversified fleets and tight cost control emerge champions in the first half of 2018
Dry bulk shipping stocks have gained 2.4% on average since the beginning of 2018. The majority of dry bulk shipping stocks earned positive returns due to firm trade of coal, iron ore and other bulk commodities. Charter rates continued to find support through favourable supply-demand fundamentals in 2018 despite a slowdown in Chinese industrial activity in the first quarter. Notably, earnings in the dry bulk market saw the usual signs of seasonality in the first quarter of 2018, albeit at levels higher when compared with historical lows witnessed in the first quarter of 2017.
Stock price gains on OPEC announcement short-lived
Crude tanker freight rates inched up marginally in June, as a result of an expected relaxation of the OPEC production and increased refinery runs in the US and Europe. However, crude oil supply concerns will continue to haunt the tanker market. Declining Venezuelan production, supply glitches in Libya and a potential decline in Iranian crude once sanctions are in place are negative for the crude tanker market. Although the crude tanker fleet has declined by 0.8% in the first half of 2018 on account of an elevated level of scrapping, this has failed to provide any stimulus to freight rates. An increase in OPEC’s crude production will support the crude tankers market although the likely reduction of Iranian barrels from November 2018, will offset much of these gains.
Product Tanker rates remain suppressed
Recent strikes in Brazil and refinery maintenance in Asia (mainly China) led to product tanker r rates plunging sharply over the last few months exacerbating the weak freight market conditions prevailing due to vessel over supply. The four-day strike in Brazil significantly impacted commodity imports and also forced the government to reduce diesel prices.
LNG stocks move up as market strengthens
LPG stocks under our coverage are on average up 2.2% since the beginning of 2018. Low average freight rates and increasing bunker costs have negatively impacted the bottom line of LPG shipping companies. Spot earnings for VLGCs on the benchmark AG-Japan route averaged USD 2,200pd in April - the lowest since July 2009, and were much below the average operating cost of USD 9,000pd. The rates have shown a marked improvement since the beginning of 2018 and currently average USD 10,200pd on the AG-Japan route, owing to a recovery in demand.
Carriers suffer a hard landing in 2018
Rising bunker costs, sluggish freight rates and the tariff wars have taken a brutal toll on liner company stocks this year. As these factors gathered steam, they left carrier stocks in the doldrums.
Trade war dampens investor sentiments
The first quarter of 2018 witnessed buoyant throughput growth of 6.1% (rolling annual average). Drewry expects trade growth to remain strong at 6.5% for full year 2018, however, this is predicated upon the US and China finding an early resolution to their trade disagreements. An escalation of the trade war will likely lead to a downward revision of estimates.
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