It’s going to be a crude year for stocks in the shipping sector.
That was the consensus of equity analysts on Monday on a panel at Capital Link’s international shipping forum, which has moved online this year from its usual New York home, in response to the coronavirus pandemic.
Five stock researchers told moderator Aristides Pittas, chief executive of Euroseas and EuroDry, that tankers are set to rule the seas and the stock charts over the next 12 months, with a strong lean to those carrying crude.
On a day when oil prices hit their lowest point in 18 years, analysts agreed that the price war initiated by Saudi Arabia and its decision to flood the market can only be a good thing for the tanker crowd.
And it was tanker equities that led the way on another mostly positive day for shipping shares on Wall Street. A raft of major tanker owners logged double-digit percentage gains as the Dow Jones Industrial Average continued last week’s rally, climbing 688 points (3.2%) to 22,325.
Nordic American Tankers added 18% to its recent run, while DHT Holdings soared 15%, Navios Maritime Acquisition 14% and Teekay Tankers 10%.
On the clean products front, Scorpio Tankers jumped 9% and Ardmore Shipping 6%.
There is more to come for tankers, the analysts agreed, with a caveat here or there as to how long the bull run might last. VLCC fixtures were reported nearly $220,000 per day on Monday.
“The reasons why things have gotten better [for tankers] have been completely unexpected,” said analyst Omar Nokta of Clarksons Platou Securities, alluding to the price war this year and US sanctions against Cosco last year.
Citing the glut of oil on the market creating “routes we haven’t seen for years”, he called for “outsized earnings for the crude sector over the next several months” helped by increasing floating storage.
The outlook remains bright for next year based on a tanker orderbook of just 4% or so, Nokta said.
Mike Webber of Webber Research & Advisory endorsed Nokta’s call in the short term, but said he could see weakening emerge in the second half of 2020.
Pittas asked whether analysts were factoring in the possibility that the US might rein in its ally Saudi Arabia and pressure an end to the price war, but J Mintzmyer of Value Investor’s Edge said what’s done is done.
“It’s really a little too late for that,” Mintzmyer said. “We’re looking at up to 20m barrels per day in demand deficit. Even when China and the rest of the world come back on line, it’s going to be a gradual uptick. We’re going to see an oversupply for at least two to three months.”
Jefferies’ Randy Giveans cited VLCC charter fixtures of $100,000 per day for six months and $75,000 per day for one year.
The current upside “is enough to offset any decline in the back half”, he said. “I think tanker stocks [will] trade up further and disconnect further from energy stocks.”
Most analysts saw some of the crude strength being passed on to the clean products market.
As Ben Nolan of Stifel put it, “it’s trickier — there’s a little more risk to the products trade, but I don’t think we’re going to see a decoupling of crude and products”.
While most of the analysts were less positive on dry bulk, stocks there did have a decent day on the stock market.
Scorpio Bulkers led the pack with a 17% leap, with Navios Maritime up 9%, Golden Ocean and Safe Bulkers both rising 6% and Genco Shipping & Trading gaining 5%.
Containership stocks were mixed, with Danaos appreciating 4%, Costamare up a fraction and Global Ship Lease down 7%.
Cruise lines, without an apparent lifeline from the US government, were back on a downer, with Royal Caribbean down 14%, and Carnival and Norwegian Cruise Line falling 11%.
