CONTAINER, DRY BULK, TANKERS

Stronger tanker market pushes WET12 index to become the top-performer

Published 13. Jul 2022 1:33 PM

While fears of a global recession are looming due to inflation, interest hikes, and a general slowdown in key economies, we continue to see one index outperforming the rest

The financial markets have already seen first-hand results of uncertainty amongst investors leading to a majority of listed shipping companies paying the price, but one segment continues to stay afloat with a promising outlook for the next 6-9 months.

Whilst the container index (CON12) has seen a steep decline of 29.17% since 2. May 2022 and dry bulk index (DRY12) following with a decrease of 21.62%, the tanker index (WET12) has gone up 4.35% and is the most stable index for the time being.

The container and drybulk segments saw rapid market changes both during and post-COVID lockdowns. Stimulus checks made the consumer market more aggressive than the supply chain was ready for and a massive restocking took place, forcing retail stores to resupply their domestic storage, but now the container market faces an issue, that we believe soon will arise. Looking at data from FRED total US Business inventories are currently at the highest rate it has ever been, and it is simply due to retail stores “overordering” products for their domestic storage due to the COVID consumer boom and once the final orders from the retailers reach their domestic markets, we are under the strong impression that the container market will enter a nightmare of a market, due to a massive order book and already fully restocked shelves, forcing volume to decrease rapidly.
The dry bulk segment has seen much of the same happening, as rates started soaring initially on the back of stimulus for infrastructure in economies like China, but increased infrastructure projects are generally spurring demand. We do remain more bullish on dry bulk than the container market, as the world of commodities in general, has entered a geopolitical storm that still has great potential for the dry bulk segment, and the supply constraints continue to keep the dry market afloat.

We all sort of knew it was coming and now that it is here, we are not surprised. The tanker market has always been split in two i.e. “clean and dirty”, but now, we see it more than ever. The clean market started picking up earlier this year and has now entered its super-cycle and the foreseen future looks promising with companies announcing elevated profits to shareholders’ delight. The global refinery capacity took a nose dive in 2019/2020 as oil was selling at cheap levels and more countries were shutting down smaller operational refineries. As per Reuters “The refining industry estimates that the world lost a total of 3.3 million barrels of daily refining capacity since the start of 2020” fast forward to today, countries are now importing refined products like never before and most countries are starting up old refineries which means that global refining capacity is set to expand by 1 million bpd per day in 2022 and 1.6 million bpd in 2023. What we currently see in the product market is a combination of increased product demand and low domestic refinery capacity forcing countries to import. The dirty market is coming along but at a slower pace, and as mentioned the world currently needs products, but once refining picks up, importing crude will naturally follow. The dirty tanker market has also found itself in an interesting position with new geopolitical restrictions that will increase the “shadow fleet” but also push for a longer average tonne-mile. Lastly, domestic storage is reaching new lows in many countries and with the current oil consumption outlook, many countries will be forced to ramp up imports in the short/medium term. 

All of this comes together with a historically low order book, and it will continue to be that way. Newbuilding prices have gone to extreme levels and availability is low, leaving Owners with almost no options to order ships, but continue renewal strategies with more modern tonnage through the second-hand market, leaving a void to be replenished in 2024.

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