Ship Finance Review – Stocks Fall on Economic Worries (16 Aug 2019)

Wall StreetStock markets fell sharply this week—the second biggest drop all year—on ongoing trade war worries and news from Germany and China indicating slow­er economic growth. Bond prices rose sharply, push­ing yields to multi-year lows, analysts said. The S&P on Wall Street fell 2.93% on Wednesday, pressured by declines in the energy sector. Japan’s Nikkei ex­change dropped 1.3%, though eastern stock markets were relatively stable compared to western ones. European stock markets declined across the board after the German government reported that the Ger­man economy shrank over the second quarter of the year, the second negative quarter in a row, indicating that the eurozone’s biggest economy was in reces­sion according to the widely accepted economic definition of recession. Germany, which remains a highly export-dependent economy, has been especi­ally affected by the ongoing US-China trade war.

Bulker and product tanker owner Norden this week said it had signed two new long-term CoAs with charterers Enviva and an unnamed Hong Kong pow­er company. The contract with Enviva, the world’s largest wood pellet producer, involves a six-year period from 2021 to 2016 in which the Danish owner would carry 1.3-1.5 Mt in wood pellets from the US to Europe on its Supramax vessels. The pow­er company contract would go from early 2020 to late 2022 and involve Norden utilizing its Panamax vessels to move 1.3 Mt of coal annually. In a new interim report, Norden lowered expectations for its dry bulk unit to secure US$ 0-10m this year instead of a prior guidance of US$ 15-25m. It also upgraded expectations for its tanker unit to US$ 30-45m from a previous US$ 15-30m. CEO Jan Rindbo says 2019 has been challenging for dry bulk for a number of factors including the swine fever situation in China, which has curbed China’s soybean imports by some­thing like 15%, according to Norden estimates.

Like Norden and many other dry bulk companies, Golden Ocean is having a difficult 2019 with recent earnings reports for Q2 showing a deficit some four times that of Q1. The sharp decline in dry bulk rates early in the year was devastating for the bottom line of many bulker firms, for Golden Ocean equating to a US$ 7.5m deficit in Q1 followed by a US$ 33.1m deficit in Q2. The John Fredriksen-controlled opera­tor, which had a positive 2018, says it expects Q3 to be far more positive as the loss in Q2 can be partially blamed on one-off projects like the dry-docking of eight ships (costing US$ 6.7m) as well as losses from derivative trades (costing US$ 13.3m). CEO Birgitte Vartdal says Q3 already began with a strong start as July rates rose to five-year highs. Further into 2020, Vartdal says that Golden Ocean will profit from hav­ing much of its fleet already equipped with scrubbers as the new sulphur regulations come into force.

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