Thursday, June 25, 2020

With The Baltic Dry Index Up For Twenty Straight Sessions Will The Gamblers Who Wagered On Tankers Bet On Bulkers?

Not me.
A third-derivative trade on the demand for steel in China is just a bit too esoteric.
Simpler to lose your money in Shanghai rebar futures, less thinking required.
[rebar is rolling over after a nice little run-up]

Two from Hellenic Shipping News. First up we set the table with: 

Baltic index up for 20th session on stronger vessel demand
The Baltic Exchange’s main sea freight index extended gains for a 20th straight session on Thursday, on firmer rates across all vessel segments.
* The Baltic dry index, which tracks rates for ships ferrying dry bulk commodities and reflects rates for capesize, panamax and supramax vessels, gained 33 points, or 1.9%, to 1,738, its highest since Oct. 30
* The index has surged about 60% so far this year and has recouped losses brought about by the coronavirus pandemic that sapped demand for vessels....

And for the main course (sorry, no appetizer):
Can dry bulk woo stock gamblers who bet on tankers?
Dry bulk was where day traders placed their bets back in the day, in the mid-2000s, but this year, traders on Robinhood and other retail platforms have instead put their chips on floating storage and stocks like Nordic American Tankers (NYSE: NAT).

Here’s the emerging dry bulk shipping pitch: Dry bulk stocks trade in relatively high correlation with spot rates and unlike tanker stocks, they don’t face a painful floating-storage destocking phase. Dry bulk rates have just dramatically spiked off extremely low levels and could go much higher if Chinese import demand remains strong, Brazil clears its export logjams, and global COVID-19 economic fallout is not as severe as first feared.

Rates for Capesizes — bulkers with capacity of around 180,000 deadweight tons (DWT) that carry iron ore and coal — have jumped 631% this month, from an abysmally low $3,648 per day on June 1 to $26,672 per day on Tuesday, according to assessments of the Baltic Exchange’s 5TC Capesize Index (breakeven for a Capesize is around $13,000-$14,000 per day).

“Last week was one of the most exciting weeks in many years for the Capesize market, as spot rates more than doubled in a relentless rally that caught even seasoned freight traders and brokers by surprise and validated, once again, the incredibly volatile nature of shipping,” said Breakwave Advisors, the creator of the Breakwave Dry Bulk Shipping ETF (NYSE: BDRY), in a new report.

Fool me twice …
FreightWaves asked J Mintzmyer, a retail-investor-centric analyst at Seeking Alpha’s Value Investor’s Edge, why retail investors have been less enthusiastic about dry bulk than tankers, and whether their enthusiasm in dry bulk could be kindled.

“In terms of the lack of retail interest in bulk compared to tankers, dry bulk has had a much longer bear market run than tankers, with no real sustainable rate run since about 2011,” he responded. “Tankers had a strong 2015-2016 run and 2019 was also very strong, plus we just had a nice run for a few months in 2020.

“I think dry bulk makes sense for a summer trade based on rates coming off near-record lows and the high likelihood of Chinese stimulus driving increased iron-ore imports from Brazil. It’s a great trade to combine both the broad global recovery theme as well as a seasonal run in dry bulk rates.
“But in the medium and long term, I’m much more skeptical on bulkers than tankers.”

Minztmyer also believes retail investor disappointment with tanker bets may weigh against shifting their chips to bulkers. “There’s probably a bit of ‘fool me once, shame on you; fool me twice, shame on me’ going on as lots of people got super enthusiastic on tankers only to get disappointed by the markets. If the trade didn’t work that well in tankers, I can’t fault anyone for being skeptical on bulkers.”
Making the bull case....