Shipping Tycoon Angelicoussis Expects Trump Bump, Not Trade War

Date: 18 Nov 2016
Source: https://www.wsj.com/articles/shipping-tycoon-angelicoussis-expects-trump-bump-not-trade-war-1479477949

Greek shipping magnate John Angelicoussis expects President-elect Donald Trump to generate new business for the ailing shipping industry through infrastructure spending and increased energy production.

“There is no question that he is going to be positive for shipping in terms of infrastructure expansion. The U.S. needs a hell of a lot of infrastructure,” Mr. Angelicoussis told The Wall Street Journal in a rare interview.

Mr. Angelicoussis has three separate companies operating a fleet of 133 supertankers, dry bulk vessels and liquefied-natural-gas carriers, worth around $6.9, billion, the world’s sixth largest in terms of value, according to maritime data provider VesselsValue.

Most of the ships are chartered to oil and commodity majors including Exxon Mobil Corp., BHP Billiton Ltd. and Cargill Corp. The billionaire has been the top buyer of dry bulk vessels over the past year and also splashed $1 billion for eight crude oil and LNG tankers in June.

Mr. Trump has vowed to pump billions into projects to upgrade U.S. infrastructure. But his pledge to tear up global trade deals such as the North American Free Trade Agreement and the Trans-Pacific Partnership could cause pain for shipping industry at a time when global trade is forecast to grow by just 1.7% this year, marking the slowest pace since the 2008 financial crisis, according the World Trade Organization.

Mr. Angelicoussis hopes Mr. Trump won’t engage in a trade war with China. “Shipping lives off China,” he said. “There will be no winners in a trade war. We should leave them alone and continue to trade.” Since Mr. Trump’s election, the Baltic Dry Index, a measure of the cost to ship raw materials like cement, copper and iron ore, has risen steadily, closing Thursday at a 23-month high.

Mr. Angelicoussis said Mr. Trump’s promise to boost oil drilling and tackle export regulations will benefit his tanker business with ships bringing in heavy fuel for the U.S. market and shipping out lighter fuel to export markets. “There will be far more activity in oil and gas,” he said.

Mr. Angelicoussis said he expects the Organization of the Petroleum Exporting Countries to reach an agreement to cut production at their Nov. 30 meeting.

“Brent is low at around $46 [per barrel] because most expect no agreement,” he said. “But I think there will be one because OPEC needs it. A price of $50 to $60 is good for the Arabs because they can make money, but not overdo it.”

At that price he predicts China and India will continue building their oil reserves, saying China wants to double its 250 million barrels and India seeks to substantially boost its 100 million barrels in reserve.

Shipping – Mixed Signals

Date: 8 Feb 2017
Source: http://seekingalpha.com/article/4043733-shipping-mixed-signals

Summary

Why is the BDI dropping?

DRYS a very ugly chart.

Shipping is a rough business once again.

Infrastructure building in the U.S. could cause a surge.

A seasonal market for dry bulk cargoes.

On February 11, 2016, the Baltic Dry Index (BDI) traded to an all-time low of 290. On the same day, the split-adjusted price of DryShips Inc. (NASDAQ:DRYS) was around $1200 per share. Fast forward to February 7, 2017, and the BDI has appreciated to $735 while DRYS is trading $4.80 per share. DRYS has declined by 99.6% while the BDI has more than doubled. Shipping is a very volatile business.

Shipping dry bulk commodities around the world is a seasonal and a demand-based business. In late 2015 and early 2016 the prices of many raw materials fell to multiyear lows. Gold and silver reached multiyear lows in December 2015. Copper fell to its bottom in January 2015 alongside iron ore, many of the base metals that trade on the London Metals Exchange, and many other metals and minerals. In February of 2016, the price of oil dropped to the lowest level since 2003 when it traded to $26.05 on the nearby NYMEX futures contract and in March natural gas futures posted their lowest price since 1998 at $1.611 per MMBtu.

Since last year’s lows, almost all raw material prices have posted impressive gains. Even shipping rates moved higher throughout 2016. However, lately the BDI has been dropping and the price of DRYS has been nothing less than a one-way street lower.

Why is the BDI dropping?

Since November 18, 2016, the Baltic Dry Index has tanked.Source

As the chart shows, the move from 1257 in the middle of November to the current level of 735 has been dramatic. However, under closer inspection, the BDI tends to move to lows in February.

Source

The longer term chart illustrates that the dry bulk shipping index made lows of 748 in February 2013, 1091 in February 2014, 513 in February 2015 and 290 in February 2016. The pattern of lows in February likely reflects the slowdown of shipping activity in the Northern Hemisphere during the winter months. Therefore, we should expect a recovery in the shipping index in the months ahead. Meanwhile, at 735, the index has moved 41.5% lower since the middle of November but is still 153% above the level last year at this time.

DRYS a very ugly chart

DryShips Inc. is a company that attracts massive trading volume. On Tuesday, February 7, the stock traded a total volume of over 57.2 million shares and just under 10 million shares change hands on an average trading day.Source: Barchart

On a split-adjusted basis, DRYS traded at highs of $1,576,080 per share in October 2007 and was trading at under $5 on Tuesday. The 52-week range in DRYS has been from $1.97 to $2,237.20 per share which makes me wonder why anyone would invest in this company. I guess the volatility of the stock makes it a trading sardine for those looking for action in the market.

Shipping is a rough business once again

Commodities are volatile assets when it comes to prices but even the most volatile commodities in the world cannot compare to volatility in the shipping stocks.

Last year, when oil was on its way to its lowest price since 2003, the contango in oil moved to over 25% on one-year spreads for a while. The wide contango caused an increase in demand for oil shipping. China increased its strategic petroleum reserve which caused the energy commodity to flow from the Middle East and other producing nations to Asia. However, the spike in demand for oil tankers was supported by the contango.

Traders around the world with access to capital bought physical crude oil and sold deferred contracts at over a 25% premium. So long as all of the costs of the cash and carry trade did not exceed 25%, the traders locked in a profit. Those with low capital costs who were able to negotiate attractive storage deals with the shipping companies that owned tankers profited handsomely from the trade. However, this year, the spreads between nearby and deferred oil are dramatically lower when compared to levels seen last year.Source: CQG

As the chart of the June 2017 versus June 2018 NYMEX crude oil spread highlights, the contango was trading at the $1.14 per barrel level on February 7. The contango of 2.1% does not support any cash and carry trades and as the spread moved to a backwardation in December, it is likely that many of those holding trades put on at a contango above the 20-25% level have already unwound those positions for a healthy profit. The unwind is one of the reasons that demand for shipping that was growing last year at this time has declined, dramatically. However, when it comes to shipping there is a reason to be positive for a rebound in rates in the months ahead.

Infrastructure building in the U.S. could cause a surge

On the campaign trail, President Trump pledged to rebuild America’s crumbling infrastructure. If Congressional legislation approves a major infrastructure rebuilding project the demand for the basic building blocks will increase. Metals, minerals and energy demand is likely to cause these raw materials to make their way around the world from points of production to regions that require them for construction. Therefore, we may be seeing a lull in shipping right now during the dead of winter of 2017 but that could end if the President of the United States fulfills his promise to be the builder-in-chief of the nation during his term.

Meanwhile, the demand for shipping will likely reach its nadir for the year during this month.

A seasonal market for dry bulk cargoes

The fact that the BDI has made seasonal lows in February in the past three years is a sign that things are likely to pick up in the months ahead.

When I look at the action in DryShips stock I have to stop, scratch my bald head and wonder why anyone in their right mind would invest in this company. DRYS has become nothing but a number on the screen that moves around and inevitably goes lower. While I expect shipping activity to pick up starting in March, I would steer clear of this shipping company. Meanwhile, perhaps the best way to play the seasonal lull in shipping demand is to look for price weakness to buy industrial commodities over the coming weeks.

We have already seen signs that the path of least resistance for dry bulk commodities remains higher.Source: CQG

The weekly chart for lumber futures shows that one of the basic building blocks for construction is trading at the highest price since March 2014.Source: CQG

The weekly chart of Dr. Copper highlights that the red metal broke out to the upside in November and remains closer to highs than technical support. Crude oil is almost double the price it was trading at last year at this time and most other commodities that are staples when it comes to building are trending to the upside. Therefore, if the richest nation in the world starts rebuilding roads, bridges, tunnels, airports, rail systems and constructs a security wall along the southern border, expect staple commodity prices and shipping rates to pick up from current levels.

I am bullish on the Baltic Dry Index at its current level but as far as DRYS is concerned, I will leave that speculative puppy to the day traders who seem to be playing that stock as a casino game rather than a shipping company.

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Baltic Index Falls on Weaker Demand for Larger Vessels

Source: http://www.marinelink.com/news/vessels-weaker-demand410011.aspx
Date: May 20, 2016

The Baltic Exchange’s main sea freight index, tracking rates for ships carrying dry bulk commodities, fell on Friday on weaker demand for larger vessel segments.

The overall index, which factors in rates for capesize, panamax, supramax and handysize shipping vessels, was down nine points, or 1.42 percent, at 625 points.

The capesize index lost 36 points, or 3.97 percent, at 870 points.

Average daily earnings for capesizes, which typically transport 150,000-tonne cargoes such as iron ore and coal, were down $397 to $6,981.

The panamax index was down three points, or 0.49 percent, at 614 points.

Average daily earnings for panamaxes, which usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, decreased $19 to $4,909.

Among smaller vessels, the supramax index rose four points to 562 points, while the handysize index rose one point to 343 points.

 

(Reporting by Nithin Prasad in Bengaluru)

Baltic Index Falls on Sluggish Capesize Demand

Date: May 19, 2016
Source: http://www.marinelink.com/news/sluggish-capesize-baltic409946.aspx

The Baltic Exchange’s main sea freight index, tracking rates for ships carrying dry bulk commodities, fell on Thursday hurt by an decline capesize vessel demand.

The overall index, which factors in rates for capesize, panamax, supramax and handysize shipping vessels, was down eight points, or 1.25 percent, at 634 points.

The capesize index lost 48 points, or 5.03 percent, at 906 points.

Average daily earnings for capesizes, which typically transport 150,000-tonne cargoes such as iron ore and coal, were down $351 to $7,378.

The panamax index was up six points, or 0.98 percent, at 617 points.

Average daily earnings for panamaxes, which usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, increased $43 to $4,928.

Among smaller vessels, the supramax index rose five points to 558 points, while the handysize index was flat at 342 points.

(Reporting by Harshith Aranya in Bengaluru)

Baltic Dry Shipping Index Drops to All-Time Low

Date: November 19th, 2016

Link: http://www.bloomberg.com/news/articles/2015-11-19/baltic-dry-ship-index-drops-to-record-as-iron-ore-growth-slump

The cost of shipping commodities fell to a record, amid signs that Chinese demand growth for iron ore and coal is slowing, hurting the industry’s biggest source of cargoes.

The Baltic Dry Index, a measure of shipping rates for everything from coal to ore to grains, fell to 504 points on Thursday, the lowest data from the London-based Baltic Exchange going back to 1985. Among the causes of shipowners’ pain is slowing economic growth in China, which is translating into weakening demand for imported iron ore that’s used to make the steel.

“The main issue is the lack of demand for iron ore from China,” Eirik Haavaldsen, a shipping analyst at Pareto Securities AS in Oslo, said by phone. “This market is looking like a disaster and the rates are a reflection of that. It is looking scary for the market and it doesn’t look like there is going to be any life in the market in the near term.”

Just as China’s surging imports of iron ore and other commodities led a surge in the Baltic Dry Index to a record in the last decade, now rates are sliding ever lower as that growth stalls. The nation’s ore purchases will expand by just 1 percent in 2016, about half this year’s expansion and the weakest pace in six years, according to data from Clarkson Plc, the world’s biggest shipbroker. Global trade in the raw material will increase the most slowly since 2001. China’s economy will grow by 6.5 percent in 2016, the least in a generation, economists’ forecasts compiled by Bloomberg show.

The Baltic Dry fell 2.9 percent Thursday, taking its decline this year to 36 percent. Day rates for Capesize vessels, so called because they can’t get through the Panama Canal’s locks, slumped 7.2 percent to $4,015. All of the five ship types tracked by the Baltic Exchange retreated. Panamaxes, the biggest to go through the Panama Canal, fell 1.9 percent to $3,737 a day.

It’s not just a slowdown in iron ore that’s pressuring owners. Coal, the second biggest source of cargoes, is weakening too. Global trade in the fuel and steelmaking raw material will grow by 2 percent this year, Clarkson data show. China’s buying will slide 5.7 percent next year to 159.7 million metric tons.

The fleet is also too big for the amount of cargoes that need to be shipped, a function of record ordering of new vessels when surged in the last decade when rates were reaching records.

“Its import growth of raw materials is either flatlining or declining,” Nigel Prentis, the head of research at Hartland Shipping Consultants Ltd. in London, said by phone about China. “That’s having a really big knock on effect.”

Supramax index stays around seven-year low

Date: December 8th, 2015

Source: Lloyd’s List

The Baltic Exchange Supramax index stepped back in the negative territory this week, with the index inching down by four points compared with a week earlier, to close at 465 points, the lowest in around seven years, on Monday.

The weighted time-charter average was assessed at $4,863 per day, down from the week-ago level of $4,903 per day.

Meanwhile, the period market came back to play with one vessel on contract for eight to 10 months fixed at $5,000 a day on December 2, although at a lower rate than previous similar deals. Baltic Briefing dry bulk report said that with rates being so low in the period market, owners are not so keen to dive in.

Baltic Index Nears All Time Lows on Weak China Demand

Date: January 4th, 2016

Link: http://www.marinelink.com/news/baltic-demand-nears402943.aspx

The Baltic Exchange’s main sea freight index, which tracks rates for ships carrying dry bulk commodities, fell on Monday inching near all-time lows, dragged down by weak Chinese demand.

The overall index, which gauges the cost of shipping cargoes including iron ore, cement, grain and coal, fell five points or 1.05 percent, to 473 points.

The index hit an all-time low of 471 points on Dec. 16, the lowest in records that date back to January 1985.

China’s factory activity contracted for the 10th straight month in December and at a sharper pace than in November, a private survey showed, dampening hopes that the world’s second-largest economy will enter 2016 on a more stable footing.

Chinese rebar futures fell 0.7 percent on the first trading day of 2016 despite rising spot prices, with underlying demand still weak.

Iron ore, the key ingredient for steelmaking, gave up early gains as a global supply glut and shrinking demand in top consumer China is expected to weigh on the commodity in 2016.

Chinese imports of coal and iron ore have remained weak in recent months and worries over the health of the global economy have also dented dry bulk shipping prospects.

The panamax index gained 2 points, or 0.43 percent, at 464 points.

Average daily earnings for panamaxes, which usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, rose $14 to $3,706.

The capesize index, was up two points at 472 points, even as average daily earnings decreased $154 to $4,811. Capesizes typically transport 150,000 tonne cargoes such as iron ore and coal.

Among smaller vessels, the supramax index shed one point at 449 points, and the handysize index slipped three points to 267 points.