Brexit Gainer: Tanker Sector Gains Look Net Long-term Positive

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Analyst reportedly don’t expect any real impact from Brexit on the demand side of the equation, for tanker sector of shipping industry, in the near to mid-term.  For them it looks like business as usual for the tanker companies and even foresee a net long-term positive outlook.

Last week, the UK’s vote to leave the EU sent shock waves through global financial markets, sending the pound to a 31-year low and forcing rating agencies to downgrade UK’s credit rating, citing growth concerns.  Banks and financial institutions are already squeezed by the collapse of the offshore industry, the decline in the dry cargo industry and the containers and gas markets.

However, some of the leading tanker owners not only dismissed the concerns over its impact on shipping but are confident that the rates may pick in the long run due to various factors resulting out of Brexit.

  • Temporarily beneficial in the short term due to its income being denominated in US dollars, while costs are in euros and sterling.
  • Capital constraints in the shipping industry may increase due to BREXIT thereby benefitting the tanker markets
    • Since it gets more difficult to finance new ship buildings and help tighten tanker markets going forward.
    • The impact on banks’ ability to lend to the shipping industry was more likely than any direct impact on trade volumes or asset values.
    • Tighter capital will make it even harder for companies to order new vessels.
    • The Japanese yen surged since the Brexit vote, making it more difficult for Japanese shipowners to offload their tonnage, and making it more expensive to order new buildings at Japanese yards.
  • Medium range tanker market is already neutral to slightly positive in the near term and quite positive six months out, mainly due to the decline in orderbook.
  • Some segments of the tanker market such as long range two rates actually surged on Friday after the Brexit vote.
  • The product tanker market has been bearish for a couple of months due to rising oil prices, closed arbitrage trade and extended refinery maintenance that has curbed oil product supply.

Analyst’s Views:

“It should be largely speaking something of a non-event in terms of impact on global trade for crude oil,” Euronav’s chief executive Paddy Rodgers said on a conference call for analysts.

Ardmore Shipping’s chief executive Anthony Gurnee said: “The greater the capital constraints and the restraints put on shipyards in the near term, the better it’s going to be.”

“And sooner than people think we’ll probably see rates move up and that will create a whole new upcycle, including asset prices,” Mr Gurnee added.

Also read our earlier Mfame articles on Brexit here

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Source: Lloyd’s List

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