Monday, 24 February 2020

Shipping cycle remains on recovery curve
By Andy Pierce, TradeWinds

Clarksons Platou Securities has suggested newbuilding prices should spike given strong demand with the industry heading for conditions it has not experienced in a decade.

Its analysts are also playing down the impact of an escalating trade war initiated by the US, while incoming sulphur laws are adding an exciting narrative.

“We remain confident that the shipping cycle has turned inflationary and will remain so in the foreseeable future,” said analysts Herman Hildan, Frode Morkedal and Erik Hovi in the latest Shipping Biannual report.

“We estimate that newbuild prices must increase +30% to meet future tonnage demand for the world merchant fleet, based on its historical relationship to global growth.”

The trio argued the general inflationary pressure on asset values will couple with higher elasticity and rate volatility in all sectors for the first time in the 10 years since the financial crisis ended the last industry upcycle.

This will lead to the market slack being fully absorbed by 2020, they argue.

In 2020, Clarksons Platou Securities is forecasting VLCC rates of $55,000 per day, suezmaxes at $38,000 per day, LR2s at $30,000 per day and VLGCs back to $28,000 per day.

At the same time, capesize bulkers are forecast to earn $28,500 per day, panamaxes at $17,500 per day and 4,500-teu containerships $18,500 per day in 2020.

Shipping stocks have struggled this year having been hammered down by trade war fears and still weak earnings for many segments.

Hildan, Morkedal and Hovi say a trade war when fleet growth was generally high in 2017 could have been devastating for shipping.

But with fleet growth at a five-year low, this is no longer the case, with the International Monetary Fund projecting GDP growth of 3.9% in 2019.

This could come down by 0.5% if current trade policy threats are realized and business confidence falls.

“Still, even with 3.4% instead of 3.9%, we see the shipping recovery continuing as net fleet growth is below these levels in many segments,” the analysts said.

“We also note that even if infrastructure spending were to slow, already committed projects would still need transportation of raw materials and therefore the shipping demand cycle would be expected to peak later than the overall economic cycle.

“In sum, we do not share the worry about economic growth which we believe is ultimately behind the weak share price performance for the sector this year.”

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