by John Konrad (gCaptain) Shares of product tankers are holding up well despite outsized gains in 2022 and an overall fall in the shipping market over the past few weeks.
Shipping companies specializing in product tankers – midsized ships that carry refined products like gasoline, diesel, avgas, and kerosene – are among the hottest stocks of 2022 with Scorpio Tankers $STNG up 165%, Ardmore Shipping $ASC up 105%, TORM $TRMD up 71%. Many other sectors including dry bulk, container lines, and gas carriers were also up big in 2022 but declined early this month on worries of a recession.
As an example shares of dry bulk owner Eagle Shipping, $EGLE soared from $45 per share at the start of 2022 to over $75 the first week of this month. On June 9th however, its shares tumbled more than 10% and have continued to fall to their current price of $52.
On the container side shares of Danaos Corporation ($DAC), which shipping analyst J Mintzmyer, Founder of Value Investor’s Edge, says is now trading at the cheapest valuations in company history, started the year at $75, rose to $107 in March, and then began a three-month decline to $65.
Cruise ship operators have fallen hard as well. Norwegian Cruise Line Holdings $NCLH almost touched $30 in November but has since lost almost two-thirds of its value despite a sharp easing of travel restrictions in Europe and the United States during this period.
Why are product tankers doing so well this month compared to other industry segments? Some say it’s because oil is on everyone’s minds however the $XLE – a fund that tracks the energy sector – is 18% below its early month highs while oil alternative $UNG – The US Natural Gas Fund – is more than 30% monthly high. Crude oil tanker stocks have fallen as well with International Seaways $INSW down about 15% from its all-time-high and Nordic American Tankers $NAT down over 25% since its high in mid-April.
Is Product Tanker Strength Because Of War Orr Fundamentals?
Scorpio’s head of chartering, Lars Dencker Nielsen, told Freightwaves that the routing of ships due to war in Ukraine is having an effect but “much of the market recovery today was already underway even before the war began and that the true impact of the redrawing of the product trade map [due to the war] is yet to come later this year.”
At the Marine Money Week conference in Manhattan last week Scorpio President Robert Bugbee said, “None of you realize just how strong the market is right now for product tankers.” Shipowners on several tanker panels concurred claiming that rising demand, increased ton-miles, and refinery output have all played a part. They also claim that investors are interested because shipyard availability is slim and product tanker owners are not eager to repeat the most deadly sin of the past: overbuilding.
The most logical reason is the resumption of air travel and the increase in military exercises. Air travel is highly inefficient and consumes a large amount of aviation gas, so much so in fact that Delta Airlines $DAL owns its own refinery and charters its own ships. The United States military is the single largest consumer of diesel/avgas and has been increasing activity in Europe and the Pacific in recent months.
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