09-01-2023 ‘Stellar’ year ahead for shipping stocks after 29% gain in 2022, Clarksons says, By Gary Dixon, TradeWinds
An unprecedented lack of new vessels on order is set to propel shipping shares to new heights this year, according to Clarksons Securities. Stock prices in the sector worldwide increased by 29% on average in 2022, the investment bank calculated. This greatly outperformed the broader equity market, with the S&P 500 index down 18% last year. “This demonstrates that when fundamentals are aligned, shipping shares may be expected to perform well,” analysts led by Frode Morkedal said.
Clarksons Securities argues that strong commodity prices are often required for shipping equities to thrive. But the analysts added: “What makes us so optimistic about the future is the unprecedented low orderbook in the crude, product and chemical tanker sectors, as well as dry bulk carriers.” The investment bank believes fleet growth will stagnate in 2024 and 2025, aided by increased scrapping and slow steaming to meet new carbon regulations. “With ships possibly in short supply from next year, even a minor increase in demand might ignite shipping markets and equities,” Morkedal and his team said. “As a result, 2024 and 2025 might be really great years, and because equities often price in the outlook ahead of time, we expect 2023 to be another stellar year for shipping equities,” they added.
Despite likely recession in many countries this year, the energy crisis and China’s return to growth should keep cargo demand healthy, helped substantially by increasingly longer trading routes, Clarksons Securities is forecasting. “It is unusual in history for the supply side to appear so convincing before a recession begins. This, in our perspective, makes risk/reward quite appealing,” the analysts said. The report cites a pearl of wisdom from an unnamed shipowner, who once said demand is virtually impossible to predict, so the only factors worth considering are vessel prices and the orderbook. “This is why Greek and other savvy shipping investors are now buying ships because they believe the price of secondhand vessels is too low in comparison to newbuilds, and the low orderbook indicates that prices are most likely to climb in the future,” Clarksons Securities said.
In 2022, crude, product, and chemical tankers were among the best-performing sectors. But their share values remain low at between 80% and 85% of net asset value, the company calculated. Dry bulk is expected to outperform this year as China resumes growth, strengthening demand for resources such as iron ore and coal, the analysts believe. Car carriers and container ships, however, are more dependent on end-user demand in the West and consequently face challenges as a result of the recession, increased fleet growth, and persistent port congestion that might still normalize, they said.