Drewry Maritime Financial Insight: Shipping Facing the Pandemic Crisis Effect
Port operators: After starting the year on the positive note (post phase 1 US-China trade agreement), equity markets across the world turned jittery looking at the speed and the spread of COVID-19. Despite strong industry fundamentals and prime importance in the international trade, port stocks under our coverage posted massive declines (DPW being the only exception). In line with the MSCI emerging market index decline of 23.9%, Drewry Port Index lowered 22% on YTD basis. Moving forward, we believe that longer the situation prevails and wider the spread into key consumer markets, greater the risk of a deep recession, with recovery in seaborne trade pushed towards 2021-22.
Dry bulk shipping: Charter rates are under pressure due to disrupted commodity supply and economic distress in major demand centres. Rates will squeeze in April as many countries across the globe are under lockdown due to the COVID-19 outbreak, resulting in sluggish commodity trade. The only positive news for dry bulk ship owners is the normalising situation in China. It seems that the worst is over for China and the country’s economic activity will pick up pace over the next couple of months, giving a positive outlook for the country’s steel production as well as iron ore and coal imports.
LNG shipping: Spot LNG shipping rates plummeted in 1Q20 as the virus outbreak had an adverse impact on LNG trade and LNG spot prices. China’s LNG imports declined steeply in the last three months with major Chinese LNG importers declaring force majeure, which further exacerbated the LNG glut in the market. LNG shipping stocks under our coverage declined 25% mom and 39% in the three month period ended 31 March 2020.
LPG shipping: Drewry expects LPG freight rates to weaken in April due to the increase in prompt vessel availability on both sides of the Suez along with trader-relets still available in the market. Freight rates declined in March due to a buildup of tonnage as the virus hit industrial demand in Asia. The Baltic Index (AG-Japan) collapsed to average USD 57.8 per tonne in March after starting the month at USD 63.4 per tonne. In line with the index, we expect spot rates to further weaken to average USD 48.0 per tonne as lockdowns in Asian and European countries to contain COVID-19 will curb LPG demand.
Crude tanker shipping: Crude tanker day rates surged substantially in March on the back of increased demand of oil tankers amid sharp decline in oil prices and increased chartering activity on all major trading routes. VLCC earnings on the Middle East-China (TD3C) route shot up to ~USD 233,600pd on 31 March from ~USD 31,000pd on 28 February after a roller coaster ride in the month of March. TCE rates for larger vessels reflected a similar trend on key trading routes. Crude tanker shipping stocks rallied in past few weeks on the back of recent surge in freight rates;; however the rally will not sustain for long amid the weak economic outlook and a potential slowdown due to spread of COVID-19 pandemic and its adverse impact on economic activities.
Product tanker shipping: After declining sharply in January, product tanker rates surged in the last month on account of the increase in storage of refined products. In line with the steep fall in crude oil prices, refined product prices have plummeted as well and buyers are looking to benefit from the potential rise in prices of these products in the near term. Weak global economic activity due to the virus and a decline in transportation demand pose risks to refined products trade.