Commodity Shipping
2Q09 Review: Fundamentals
Improve but Sentiment Falters
Equity summary: Overall, 2Q09 was a good quarter for
shipping equities, which advanced 27% q/q (their first
positive quarter since 2Q08). However, when compared
with the losses of the past three quarters (-33% in 1Q09;
-40% in 4Q08; -41% in 3Q08) last quarter’s gains seem
rather modest, especially in light of material
improvements in fundamentals, in our view. Starting in
early June the market became quite timid; equities sold
off in spite of the resiliency in Chinese importing,
impressive Chinese domestic demand, recovering ROW
steel prices, booming liquidity in the dry bulk S&P
market, fleet “inefficiencies” (e.g. port congestion,
storage), and rising oil sailings. 3Q should prove to be
quite interesting, in our view – the market may decide
that Chinese iron ore imports and the oil storage
phenomenon are worth paying for if they last another
few months, which could provide solid tailwinds for
shipping equities heading into 4Q09.
Tanker Market: Spot rates fell across all vessel classes
last week. Aframax rates took the biggest hit, falling
64% to $8kpd, while VLCC and Suezmax rates fell 18%
to $36kpd and 40% to $22kpd, respectively. 2Q09 will
be remembered for the absence of volatility in rates –
until June when we were reminded of how fast supply
can tighten with fleet inefficiencies (see pages 2 and 20).
Dry Bulk Market: Cape rates eased a bit last week,
while smaller vessel classes remained steady (page 3).
While there was no shortage of surprises in dry bulk in
2Q09, the one that stands out was the impact that record
Chinese iron ore importing (and subsequent port
congestion) had on Capesize rates. The magnitude of
this surprise was remarkable – in just two months, the
Jun-09 Capesize contract rose from $24kpd to $80kpd.
All eyes are still on China and how long record import
levels can persist. Judging from the equity market,
expectations are currently very low. However, given
strengthening Chinese domestic demand/PMI and the
preference for imported ore at low prices, we are not yet
willing to close the book on Chinese iron ore imports