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The latest rally in the shipping freights’ markets, not to mention shipping stocks is yet another sign of the rate of integration between the once isolated shipping industry, with the world’s financial markets and traders. It is now more apparent than ever, that freight rates have much to do with supply and demand, but also with speculative moves in the commodities’ markets. In its latest weekly report, shipbroker Allied Shipbroking noted that “we have all borne witness to the sluggish pace of trade growth witnessed during the course of the past 4 years as well as the even slower pace noted within to 2016. Given the glut in tonnage supply that has accumulated since 2011, the shipping industry has found it very difficult to find a stable foothold from where to keep itself in “normal operations” and with viable earnings. What made 2015 & 2016 so problematic is that the balance between demand and supply went further off course as trade growth almost came to an absolute halt. This growing concern had been in part expressed in the worries that were being voiced over the outcome of the U.S. elections, with many prominent economists and economic analyst in major organizations seeing a further deterioration of the situation as major countries around the world start to turn to more inward focused economic policies”.
According to Allied’s George Lazaridis Head of Market Research & Asset Valuations, “just one day after the results came out and we started to see a very different picture emerge in the markets. Trade in most bulk commodities was instantly boosted, with freight rates in both the dry bulk and tanker markets for the majority of size groups shooting up considerably. At the same time commodity prices were in for a major rally, with most prominent that of coal which even managed to peak at some point above US$ 100 per tonne. Things have quietened down considerably on all fronts since then and it looks as though we are heading towards some normality which is still at better levels then it was one month prior”.
So, one can’t help but wonder where did all this optimism come from however and does it have enough basis for it to match a more long-term trend? Lazaridis said that “this quick move seems to have been generated by a series of events that took place triggering a domino move that boosted things further and further, urging the speculators to further fuel the market. For one we had the basis of most of the pre-election talks by Mr. Trump that referred to a splurge of infrastructure spending in the U.S. during his presidency. Such a splurge would need to be adequately fed by bulk commodities such as steel, cement and other vital bulk commodities used in construction. As the market moved more bullish for these commodities and several traders went into stockpiling mode in order to be adequately stocked for the proposed boom in demand, the second wave of effects started to take hold. A mass of investors had already started to flee out of several emerging markets (such as Mexico) and starting to head towards the commodities markets which had showed greater promise since the summer period. As they flocked they boosted prices ever further and with prices rising quick a surge was generated (essentially a mini bubble) as traders looked to move quick before prices got too hot. Similarly traders in many economies which are heavy importers of these commodities where in an even bigger rush as the strengthening dollar amplified the price hike even more”.
Allied’s analyst went on to note that “these price hikes in commodities were to the main benefit of ship owners as the cost of freight became an ever more insignificant portion in the whole equation, taking second place to the speed with which a trader could book the cargo he was after. This speculatively fueled rally has boosted the market significantly however it seems as though it has run its course for now. That’s not to say that an imminent collapse is now in sight. It looks as though trade might hold at much better levels for the remainder of the final quarter of 2016 than it did a year ago. As to how well it will cope in the first quarter however is another story altogether”.
via HSN