Shipping stocks fell sharply on Monday as Wall Street’s main indexes closed higher. Multiple shipping names sank by double digits, adding to last week’s pullback.
U.S.-listed shipowner shares face simultaneous sentiment pressures on multiple fronts.
Longer voyages could offset economic decline
Last Tuesday, the IMF reduced its global gross domestic product growth outlook to 3.6% for 2022, citing fallout from the war. That’s down from its previous forecast of 4.4%. The IMF lowered its 2023 growth outlook to 3.6% (from 3.8%) and foresees 3.3% growth in subsequent years. Such growth levels would mark a steep slowdown from last year’s consumer-spending-juiced growth rate of 6.1%.
“For shipping, slower economic growth is not good, all else being equal,” wrote Clarksons Platou Securities analyst Frode Mørkedal on Monday.
He continued, “What is likely to cushion the impact on [dry bulk and tanker] shipping, in our view, is significantly longer trading distances because of the Russia-Ukraine crisis, and low fleet growth.”
“One important factor for shipping demand is the length of voyages. If average nautical miles increase, this could compensate for lower volume. For both dry bulk and tankers, we have seen a lengthening of average trading distances on the back of reduced Russian exports. Low underlying fleet growth also means that slowing economic growth is less worrisome than in prior periods.”
Clarksons estimates that the Russia-Ukraine war could reduce total seaborne trade by 0.9% this year in terms of tons. However, because cargoes are being transported longer distances, it projects that shipping demand measured in ton-miles (volume multiplied by distance) “has remained very similar to previous projects, at a firm 4%, despite the downgrade to volumes,” said Mørkedal.
China lockdowns: Different timing for different segments
Meanwhile, COVID closures in China appeared to be worsening on Monday. With Shanghai still under lockdown, Beijing looks like it may be next.
Chinese lockdowns should affect all shipping segments, but to different degrees with different timing.
Evercore ISI China analyst Doug Straszheim predicted that container shipping would feel significant lockdown effects starting later next month. “We expect a burst of exports from China after Shanghai gets unlocked. And we expect that unlocking to start around mid-May,” he said in a client note on Saturday.
In contrast to container shipping, China’s lockdowns are having an immediate effect on tanker shipping. “The latest information from China suggests that lockdowns have curbed domestic oil demand by almost one million barrels per day [b/d],” wrote Alphatanker on Monday.
“As Chinese demand has taken a hit, refiners have reduced their activity … [and] in turn, this has seen Chinese seaborne crude imports drop back by around 1.6 million b/d year over year, to 10.1 million b/d in March, the lowest since last October.”
“Demand is being walloped,” said Alphatanker.
