Latest financial markets assessment

Container shipping
Despite the unpredictability amid the escalating trade war between the US and China, container carriers performed better in 2Q19 than in 2Q18. Nonetheless, clouds of uncertainty have been hovering around the industry as spot rates continue to decline on major East-West trades notwithstanding better capacity management by carriers. On a positive note, some front-loading surge on China-US trade to beat the latest 15% levy on Chinese imports and stock up earlier than usual for Thanksgiving and Christmas sales could boost Transpacific trade and freight rates. 
Port operators
Slow pace of throughput recovery amid the US-China trade war and a slowing global trade spells a worrying trend for port operators. Our Drewry Port Index fell steeply as markets count the cost of the impact of the global slowdown which is gripping major economies. As such, the sector profitability nosedived (ex the IFRS16 impact) and margins have all but stayed flat. We believe the valuations are under correction against the backdrop of the outlook of dampening volume growth. 

Dry bulk shipping
2019 was expected to be the year of recovery for the dry bulk shipping sector. The macroeconomic factors and natural calamities, however, failed to provide for that recovery. The first five months saw subdued movement in the representative Baltic Dry Index (BDI), and it struggled to cross the 1200 mark, which it had at the beginning of 2019. However, Vale’s comeback triggered the demand side as industries restocked their depleted inventories. The IMO regulations hit the supply side, with increased demolitions and extended dry-dockings. The net effect drove the BDI to a nine-year high in August. The stock prices have been a little slow to respond, with an average YTD gain of about 20%. As compared with 3Q19, however, the 4Q19 is expected to see some correction in terms of rates and thus stock prices, primarily due to seasonal weakness. 

LNG shipping
Low LNG prices and the ongoing US-China trade war continue to weigh on LNG shipping stock prices despite a recent surge in the LNG shipping spot rates. The LNG shipping spot rates have surged with the onset of winter, the use of LNG carriers for storage and some LNG vessels being affected by the US sanctions on Cosco’s tanker subsidiaries. We expect 60% slippage of LNG liquefaction projects from 2018 to 2019.

 LPG shipping
In the LPG shipping space, the Baltic LPG Index is currently trading over USD 80, closing at USD 81.14 per tonne on 11 October, 2019. This is highest in four years despite the limited fixing activity out of the Middle East. Meanwhile, the drone attacks on Saudi Arabia’s oil facility on 14 September led to supply disruptions in the market. We believe despite the crisis, LPG demand should remain strong in Asia. In addition, congestion at US ports, deferment of cargoes in the Middle East and strong winter demand are also key tailwinds for the LPG sector. 

Crude tanker shipping
The outlook for the crude tanker market is positive for 4Q19 and 2020 despite heightened risks in the form of geopolitical tensions and the US-China trade war. Although the sector was expected to recover in 4Q19 with the increase in refinery runs on account of seasonal firmness in oil demand and surge in diesel demand ahead of the implementation of the upcoming IMO regulation on bunker fuel, the recent supply shock because of the US sanctions on Cosco subsidiaries added fuel to the fire. 

Product tanker shipping

The product tanker spot charter rates have increased steeply in the last one month on account of the US sanctions on Csoco’s tanker subsidiaries and the onset of winter demand. The earnings of product tanker companies have benefited from improved spot charter rates in 1H19. The orderbook-to-fleet ratio dropped from 9.4% at end-2018 to 8.1% in September 2019.

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