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Latest Virus Variant Expected to Maintain Positive Momentum in Shipping

The emergence and potential dominance of the new “Omicron” variant of COVID-19 is expected to maintain the positive momentum in most shipping markets. In its latest weekly report, shipbroker Allied Shipbroking said that “threats to the global economy mount as the omicron variant continues its spread across countries. Despite the fact that for the moment it has been Western Europe that has taken the brunt of the new wave, fears over the potential damaging economic effects have been widespread, as seen in the stock market reaction last week in the US as well as in the Far East. For the moment it looks as though most of the brunt will likely further feed the disruptions noted on the already stretched supply chains”.

According to Allied’s, Mr. George Lazaridis, Head of Research & Valuations, “these in turn have mostly helped support shipping markets in their majority, as demand from global consumers has shifted more so towards goods rather than services (services such as tourism/travel, eating out etc.), a move that will continue to hold as we see limits on free movements intensify. One can see how this could help support markets such as those of containerships, while potentially landing yet another blow on crude oil tankers”.

Source: Allied Shipbroking

“Yet despite all these clear-cut effects that can emerge in the near term as part of increased restrictions being placed in Europe and the US so as to combat the spread of the new variant, things are looking to be a bit more complicated this time around in the Far East. Issues continue to mount in China as the “Evergrande” saga still threatens to bring a major collapse within China’s real estate sector. At this point we have yet to see a clear end in sight, with the scenario of a collapse of China’s housing market similar to what we saw in the US at the end of the 2000’s, leading to the possibility of China’s GDP growth collapsing down to an average of 2% for the 2022. Such a scenario is not far from the realm of possibility given that the real estate market accounts for more than a quarter of the Chinese economy, making it increasingly difficult for Beijing to be able to completely cover all the “pain” involved. Beyond this, the longer this potential formal default get dragged out the more hurt it seems to be causing the property sector as a whole. Being a major driver locally for steel products, the main effects have already been faced during the second half of 2021, as the iron ore market cooled down drastically from its first half highs”, Lazaridis said.

He added that “if this situation continues to drag out and is struck by a new series of lockdown measures to combat the spread of the new variant in style with what has been seen so far by China, the consequences could be considerably worse. The dry bulk shipping market looks to be more so susceptible to the negative repercussions from all this, yet depending on the severity, the negative effects could be considerably more far reaching.

Source: Allied Shipbroking

For the time being the balance seems to still be kept in the market, while we have yet to see any clear plan set out from Beijing. Without knowing the full extent of how infectious or lethal the new variant of the virus is as well as what its economic damage will be and without having any clear indication of how China’s policymakers will act to contain a complete collapse by Evergrande Group and its debt and stop the downturn in the property sector becoming too serious, any and all potential scenarios for the economy are on the table. The hope still holds that favorable stimulus measures will be taken in time to prevent the worst from unfolding, while also helping to stabilize if not stimulate the market”, Allied’s analyst concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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