For VLGCs, this time really is different. Given Russia’s limited LPG trade and predominant use of small vessels, the panel noted minor direct effects of the conflict on VLGCs. In the long term, high energy prices could boost long-haul US volumes. With rising inefficiencies in the Panama Canal in addition to regulatory impacts from 2023, some of the orderbook should be offset, but more so on the fundamentals beyond 2023. Better-capitalized companies could mean ‘it is different this time’, as equity valuations are close to the lows of 2018 despite asset sales supporting companies’ NAV.
Car carriers boosted by China’s EV push. Our panel noted the ongoing crisis as another supply disruption pushing demand to the right, but with auto exports less exposed than auto production. The panel agreed on a bullish outlook for supply given the aging fleet and low orderbook, and found positives from demand in the near and long term, as low US inventories have seen second-hand vehicle prices rise, while China is increasing its EV production. China’s ambition to take part in the shipping logistics chain is increasing demand for vessels on strong rates and long durations.
Dry bulk asset values should still deter ordering and support NAV. Given the relative importance of Russia and Ukraine for dry bulk volumes, our panel noted the potential for a negative impact on grains, but the possibility of coal seeing a positive tonne-mile impact due to higher energy prices and the reshuffling of volumes. While iron ore was suggested to benefit from stimulus, a clouded outlook on economic growth following the inflationary pressure dampened the panel’s optimism. However, second-hand asset values remain attractive relative to earnings and newbuild prices, which will likely contribute to the low orderbook and support NAV.
Immediate relief for crude tankers on potential nuclear deal. A nuclear deal would be like ‘flip the switch’ on added tanker demand, as illicit volumes would immediately find their way to other vessels if the sanctions on Iran are removed, according to the panelists. Also, potential Russian sanctions do not pose a risk of similar illicit trades due to Russian port infrastructure, which should see the ‘ghost fleet’ pressured toward scrapping. If the current 1.0–1.5mbpd in Iranian exports are added to the global crude export numbers, we would be near 2019 levels. Moreover, as 11% of the fleet is above 20 years of age, the 5% fleet growth since 2019 should be offset to bring you back to and perhaps beyond 2019 utilization.
Product markets already tighter on Russia risk. The product tanker panelists already saw disruptions from ‘self-imposed’ sanctions, as Russia is Europe’s main source of diesel and as inventories are already low. With a rising arbitrage, the panelists cited rising rates due to “recalibration of volumes”. Finally, a panelist noted that although the VLCCs would do well from time to time, the product tanker companies are currently cheaper on NAV and earning significantly more.
Energy security a driving force in LNG for years to come. A wide-open arbitrage implying that theoretical freight rates could reach near USD3m dollars per day has seen charterers scrambling for tonnage. One-year time charter rates for TFDEs are at USD120k/day, indicating a pronounced pick-up from the near mid-70s quoted at end-February. While the near-term implications of the energy squeeze in Europe look unfavourable for LNGCs, the longer-term backdrop for more LNG volumes appears positive. Hence, FLNG and FSRU assets should see unprecedented demand as Europe seeks less reliance on Russian gas.
