The significance of the orderbook
The tanker orderbook represents managers’ assessment of the industry’s future fundamental outlook. It reflects the number or capacity of ships that have been ordered, as well as the number of ships under construction. When ship orderbook increases, it signals that future supply and demand dynamics are favorable and that companies can generate good returns. On the other hand, when ship orderbook falls, it reflects a negative picture for the tanker industry.
The divergence between product tankers and crude tankers remains
On September 13, orderbook for product tankers fell to 12.05% of existing capacity measured in dwt (deadweight tonnage). This was quite a significant decline from 12.47% in the prior week. Nonetheless, this is normal after such a large increase from 11.43% to 12.32% in August. Over the next few days, we could see some consolidation as managers stay in wait-and-see mode before venturing out to purchase another round of new vessels.
Unlike the crude tanker orderbook, the orderbook for product tankers (ships used to haul refined oil like kerosine and gasoline) have been turning around since the beginning of the year. While it isn’t always clear when a trend is reversing, investors could have used the indicator as a signal to invest in product tankers such as Navios Maritime Acquisition Corp. (NNA) and Scorpio Tankers Ltd. (STNG) even after the turnaround. The two stocks have performed quite well since the start of the year.
The benefits of using a percentage of existing capacity
Analysts often use a percentage to reflect changes in the number of operating ships over time. An orderbook based on the number of ships has little meaning without context. If 12 ships were on orderbook, the interpretation could differ when existing capacity consists of 30 versus 1,000 ships. An orderbook also helps investors understand how much of existing capacity is currently in backlog and, if all of it were constructed, what percent of growth investors could expect.
As the orderbook rises, so do share prices
The turnaround we’ve seen since January is a sign that managers see industry supply and demand catching up to each other. As long as the upward or sideways trend remains, it’s a positive for investor in companies like NNA, STNG, Tsakos Energy Navigation Ltd. (TNP), and Capital Product Partners LP (CPLP). The Guggenheim Shipping ETF (SEA), which holds a position in Tsakos Energy Navigation Ltd., Capital Product Partners LP, and the mega shipping giant Maersk, will also benefit.
- Part 1 - Product tankers maintain upward momentum, positive for stocks
- Part 2 - Why supply growth has led product tanker shares in the past
- Part 3 - Neutral shipping rates mean fleet expansion, driving share prices
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