Why lackluster orders reflect weak tanker rates and sentiment
Why is the orderbook important?
The oil tanker orderbook represents managers’ assessment of the industry’s future fundamental outlook. It consists of the number of ships that have been ordered and the number of ships under construction. A rising orderbook often suggests that oil tankers have better a expectation of future supply and demand dynamics that are favorable for new or existing ships generating good returns. Conversely, a falling orderbook paints a negative picture.
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Orderbook figures hit a high of 47% mid-2008, when managers’ optimism about future oil trade growth was at its peak, largely driven by soaring oil prices and global economic growth throughout the early 2000s. The orderbook for crude tankers had been in a downtrend since early 2011, as managers saw a slowdown in the global economy and future supply growth was still too high.
Since the end of 2013, oil tanker shipping has regained investors’ interest as the Baltic Dirty Tanker Index rallied along with oil tanker shippers’ stock prices. With the U.S. and EU recovering from the crisis, future supply growth very minimal, and China importing more crude oil, oil tanker companies began to place more orders as rates went up.
The current situation
Although the orderbook isn’t falling, industry sources have shown a rather lackluster trend over the last few weeks, trading mostly sideways. This shows that managers are more or less on the sidelines, refraining from ordering a higher number of ships unless they see more positive development. This is negative for the Guggenheim Shipping ETF (SEA) and crude shipping companies such as Frontline Ltd. (FRO), Teekay Tankers Ltd. (TNK), Nordic American Tanker Ltd. (NAT), and Navios Maritime Acquisition Corp. (NNA). Most of this has been priced in already, given the weak rates over the last two months. But share prices aren’t likely to rise unless rates improve materially or we hear some positive discussions during the next earnings calls, even though a long-term recovery is still in the cards.