Why weak September orders led to weak product tanker performance
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.
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A weak September for product tankers
On September 27, orderbook for product tankers fell to 12.09% of existing capacity from the prior week’s 12.19%, measured in dwt (deadweight tonnage). September was rather a weak month for product tankers, as orderbook fell by a large amount from 12.47% on September 6, while dry bulk companies have performed well.
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.
Long-term uptrend hasn’t turned negative
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.
Unlike crude tankers, 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
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 revenues and earnings of 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.