Shipping Ready to Capitalize on Commodities’ Latest “Supercycle”
According to Allied’s analyst, Mr. George Lazaridis, Head of Research & Valuations, “all this is in vast contrast to the general sentiment that we have become accustomed to during this past “lost decade” (since the end of the last super cycle), while over the past year the overall sentiment had been further battered by oversupply issues and the dampened demand that took shape since the start of the pandemic. Now with many looking even more favorably at the pent-up demand that has been mounting since the early part of 2020, these markets could well have plenty of momentum stored up to drive such a “bull run” within the year”.
Lazaridis added that “as a whole, we have seen a roughly 17% rise across a broad range of commodity prices since November (since the announcement of the Pfizer vaccine), pushing for levels last seen in 2018 in most cases. Yet this is still a far cry from the stellar highs noted back in 2008 during the peak of the last super cycle. There are however several tell tale signs pointing to the possibility that the global economy may well be bouncing back to similar market rally. Commodity super cycles tend to be initially driven by periods of loose fiscal policies which tend to coincide with cheap price levels relative to equities and other investments. This was the case in both the 1970’s and 2000’s. Given that there has been a big flow of freshly minted cash flowing from Central bankers and most commodity prices are at even lower levels relative to equities then they were back in 1998, one could assume that the perfect mix has been well in the making”, he noted.
“Yet this is only part of what has driven great bull runs in the past. In order to feed off such a tailwind you need strong emerging economies that can drive a faster that normal growth rate in demand, while at the same time feeding off an increased openness in global trade. With regards to the former, there have been some positive signs though still a far cry and in their infancy. With regards to the latter, the past couple of years have been anything but ideal. All this means that despite some of the groundwork set out by some market fundamentals, without all the right mechanisms firing in sync, this could well end up being a “near miss”.
Either way things end up turning out, it looks as though shipping is primed to reap any of the benefits that come its way. Orderbooks across the board of different sectors are at even lower levels than they were in the 1990’s, while increased pressure from new regulations and high scrap steel prices blow a “favorable wind” in helping keep the fleet growth rate at even lower levels. Any positive gains to be had (even minor ones) in terms of demand growth, could easily translate over to favorable windfalls in terms of earnings. For some sectors this may well be more the case than for others, but right now as things stand, it looks as though 2021 has the potential to be the best year on record in over a decade. It might be too early to tell, but there seems to be plenty to support the increased positive sentiment that has been portrayed of late.
Nikos Roussanoglou, Hellenic Shipping News Worldwide