Over the past year the Baltic Dry Index has given investors sea sickness as it continues to gap down to its lowest value since Index inception. This has emboldened global trade bears and helped contribute to the negative sentiment regarding global growth. While some commodity sectors (e.g., iron ore) started seeing some modest growth in December, the big story with dry cargo ships, and bulk carriers in particular, has been the drop in coal demand from China. This drop led to empty bulk carriers parked at ports and a reduction in new ship orders, in spite of the continued scrapping of older carriers.
Tankers, on the other hand, have shown more resilience in today’s challenging environment. On the heels of sustained, lower oil prices, global crude demand remains healthy, particularly in Asia. Increased volume has led to tankers engaging in the practices of storing oil and increasing average vessel speeds. Average vessel speeds are used by industry participants as a proxy for how active the global fleet is at any given time. In this regard, tankers, like their distant cousin aircraft, have benefitted from lower crude prices.
Key Takeaway: Weakening coal demand from China remains a drag on global trade. However, crude tankers have stayed quite busy and full, compared to their empty and parked bulk carrier counterparts. This lighthouse in a sea of global trade negativity is unlikely to mitigate the risks associated with commodity pressures in Asia. However, it should serve as a reminder that even in the darkest of times, a little positive news can eventually lead to calmer waters.
The material provided here is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management.
This material is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
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