08/7/15

Oil Tankers the Exception to Weak Shipping Market

Photo (c) Shutterstock/Faraway
Photo (c) Shutterstock/Faraway

 

Reuters

By Sinead Carew

Aug 7 (Reuters) – Maritime stocks have broadly fallen this year as weak demand for some commodities and goods in Asia and oversupply of ships have hurt much of the industry, with one notable exception: Oil tankers have been doing a booming business and their shares are up as much as 50 percent year to date.

Growth in oil tanker shares can run a bit longer, analysts and investors say, though they see weakness in dry bulk, liquid natural gas and container shipping extending into 2016 or beyond.

The broad maritime market, as represented by the Guggenheim Invest Shipping ETF, has fallen 8.5 percent so far this year. The Guggenheim ETF includes companies ranging from oil tanker Nordic American Tankers Ltd, which has risen 48.7 percent, dry bulk carrier Navios Maritime, whose shares have fallen more than 11 percent, and liquid natural gas shipper Gaslog Ltd, which has fallen 31.7 percent.

Shippers of crude oil and refined oil products have been able to charge their highest daily rates in years because elevated oil production has led to strong shipping volume. Investors see high volume oil shipments keeping the tanker fleet busy as the Organization of the Petroleum Exporting Countries focuses on market share over oil prices.

“The next 18 months or so should be pretty good,” said Ian McDonald, an analyst at asset manager T. Rowe Price, which holds shares of Teekay Tankers,, which have risen 42.7 percent this year.

Even after that runup, Teekay Tanker is relatively cheap with a 5.4 ratio of enterprise value to earnings before interest tax, depreciation and amortization compared with a 9.3 average since its late 2007 initial public offering, according to McDonald.

Oil tanker investors are also looking forward to winter. Summer rates typically trend lower because capacity is less constrained when seas are smooth and daylight hours are long, making for more efficient trips than in winter when ships are tied up.

Winter heating oil demand will also boost ship use, according to Douglas Mavrinac, analyst at Jefferies in New York, citing industry expectations for an increase in crude demand.

Not so booming are shipping firms specializing in liquid natural gas, where fleets are about 10 percent bigger than they need to be, given slowing growth in demand from key markets including China, Japan and South Korea, said Paul Wogan, chief executive of LNG transporter GasLog. He sees a ramp-up in Australian shipments and increased exports from new U.S. facilities in 2016 improving the outlook in 2016.

Dry bulk shipping stocks also have suffered this year from slowing demand in China for coal and iron ore. Shares in International Shipholding Corp have tumbled 60 percent this year, mostly due to weak dry bulk shipping rates.

Fewer new ships are coming online to replace many that are being scrapped, so another 18 months should see some rate improvement in the dry bulk area, said Steven Baffico, chief executive of specialty maritime lender Global Marine Transport Capital.

An oversupply of ships has also constrained container shipping firms like Costamare Inc, down 10 percent in 2015 and Box Ships Inc, down 3.5 percent. (Additional reporting by Oleg Vukmanovic in Milan, and Tariro Mzezewa and Scott DiSavino in New York; Editing by Linda Stern and Leslie Adler)

(c) Copyright Thomson Reuters 2015.

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08/7/15

Capesize Rates More Than Double in Last Month to Hit 2015 High

capesize bulk carrier
Photo (c) Shutterstock/tcly

 

By Manisha Jha and Bill Lehane

(Bloomberg) — The cost of hiring a ship to haul iron ore more than doubled in the last month amid speculation that China is adding to stockpiles while the global vessel fleet shrinks.

Rates for Capesizes, the vessels that dominate the ore trade, were at $18,250 a day as of Friday, compared with $8,369 a month ago, according to data from the Baltic Exchange in London. The cost advanced to $19,499 on Aug. 5, the highest in eight months.

The world’s biggest producers including Rio Tinto Group, BHP Billiton Ltd. and Vale SA have expanded output, forcing higher-cost competitors out of the industry as they seek to maintain market share. Brazil, which accounts for about 15 percent of China’s imports, shipped the most in July since December, Trade Ministry data show.

“The recent spike is predominantly driven by more iron ore going from Brazil to China,” Eirik Haavaldsen, a shipping analyst at Pareto Securities AS in Oslo, said by phone Aug. 5. “There’s been a restocking of Chinese iron ore inventories which absorbs a lot of vessels.”

China is the world’s biggest buyer of iron ore and its stockpiles started to increase in July, according to Arctic Securities ASA. The nation’s port inventories fell to 79.35 million tons at the end of the previous month, the lowest level since November 2013.

“Many had expected fourth-quarter strength in the Capesize market, but the strength has begun in July,” Jeffrey Landsberg, managing director at Commodore Research, said by e-mail Aug. 4.

Contracting Fleet

The cost of hiring the vessels rose 16 percent this week, a fifth straight advance, and are at the highest for the time of year since 2010, Baltic Exchange data show.

Capesize rates have also been buoyed by a contraction in the fleet of vessels, Marc Pauchet, an analyst at Braemar ACM, said by phone. Owners scrapped more vessels this year than in all of 2014, according to IHS data on Bloomberg. Demolitions are slowing as profitability improves and scrap prices decline, Haavaldsen said.

Slowing demand from China’s steelmakers could cap gains in Capesize rates in the short term, Frode Moerkedal, an analyst at Clarksons Platou, said in Aug. 5 report.

“If you’re a steel mill facing tough or negative margins there is little incentive to buy today when prices could be lower tomorrow,” Moerkedal said. “Buying smaller lots from port inventories rather than importing a ship load has therefore been more common.”

Ore with 62 percent content delivered to Qingdao sank to $44.59 a dry ton on July 8, the lowest in records dating back to May 2009, according to Metal Bulletin Ltd. Prices rebounded to $56.40 a dry ton as of Thursday.

©2015 Bloomberg News

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