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.
Orderbook remains in an uptrend
On October 11, the orderbook for product tankers stood at 12.14% of existing capacity measured in dwt (deadweight tonnage). This was a decrease from 12.41% on October 4, which showed an increase from 12.09%. September was rather a weak month for product tankers, as the orderbook fell considerably, from 12.47% on September 6 to 12.09% at the end of the month.
Despite September’s weakness, this is normal after such a large increase from 11.43% to 12.32%, as managers stay in wait-and-see mode to reassess where future demand and supply for product tankers will be. There’s no sign yet that managers are seeing a cloud over the ocean’s horizon, and the long-term trend remains positive. October 4’s jump is evidence of this positive outlook.
Percentage of 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.
Orderbook’s impact on shares
The orderbook for product tankers (ships used to haul refined oil like kerosine and gasoline) has 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).
As the orderbook rises, so do share prices
As long as the upward or sideways trend remains, investors can expect higher revenues and earnings for 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.
© 2013 Market Realist, Inc.