Tanker stocks tumble as rates fall short and analysts pare forecasts
Pareto cut its spot-rate estimates and Stifel downgraded tanker stocks it covers
Tanker rates remain profitable but the freight market is not as strong as investors had expected. Lack of rate momentum, concerns over Chinese demand, and a potential pullback in asset prices are making tanker investors skittish. Stocks are falling in heavy volume
TANKER stock charts were a sea of red on Wednesday as analysts cut their forecasts for spot rates and fourth-quarter earnings.
Crude and product tanker rates are not bad — they’re just not as high as expected. Adding to negative sentiment, concerns are growing on the market outlook for 2025.
The slide in tanker shares is part of a broader decline in equities for bulk commodity vessel owners.
According to Jefferies analyst Omar Nokta: “Geopolitical risks and the upcoming US presidential election are creating an uncertain backdrop, with softer spot rates across the crude tanker, product carrier, LNG and LPG segments testing investor conviction.
“Containers are the lone shipping segment set to show sequentially higher 3Q earnings and positive 4Q estimate revisions,” said Nokta.
Dry bulk stocks are down around 15% in October to date. Product tanker stocks have fallen by a similar percentage, with crude tanker stocks down around 12% on average. In contrast, the SPDR exchange traded fund that tracks the S&P 500 — a measure of broader stock market sentiment — is up 2% month to date.
Both product and crude tanker stock prices are back near where they began the year, and heavily underperforming SPDR on a year-to-date basis.
As of the closing bell on Wednesday, larger product tanker names were up less than 2% year to date, on average. Torm is now down 1% versus the January 2 adjusted close, with Hafnia down 3%. The top crude tanker stocks are up around 6% since the beginning of 2024 — far below the 23% year-to-date gain of SPDR.
‘Tanker expectations are too high’
“Commodity shipping markets have disappointed — and tanker expectations are too high,” warned Pareto Securities analyst Eirik Haavaldsen in a client note on Wednesday.
He cut his crude tanker spot-rate estimates by 29%-32% for 4Q24 and by 9%-14% for full-year 2025.
“Though it’s hard to label tanker markets as ‘weak’, the second half will be lower than the first half,” he said. “For the second consecutive year, the fourth quarter is starting at a weaker pace than anticipated and should end up with a lower year-on-year trend. VLCC rates, in particular, remain disappointing.
“Into 4Q24, global refinery throughput is expected to rise; however, the ever-returning argument here is weak refinery margins — crack spreads — which have now given up all the gains we had in 2022-23. European and Asian refineries have struggled recently. This has prompted run cuts in both regions.”
Haavaldsen lowered his 4Q24 product tanker spot-rate estimates by 21%-33%, and his 2025 estimates by 7%-17%.
“For product tankers, we expect lower demand growth [in 2025], with several factors possibly hurting trade,” he wrote, adding that the vessel supply outlook is better for crude tankers than product tankers.
In a client note on Tuesday, Stifel analyst Ben Nolan downgraded tanker stocks Ardmore Shipping, Scorpio Tankers and International Seaways from “buy” to “hold”.
“Slow growth in oil consumption could be equal to or less than tanker supply growth,” said Nolan. “Weakening Chinese oil consumption is starting to weigh on crude tanker rates.”
He projected that oil demand will increase only 0.8% this year and 1% next year, versus growth of 2% in 2023 and 2.6% in 2022.
The Russia-Ukraine war and the Red Sea crisis “continue to elongate tonne-miles [for crude tankers], which helped support tanker rates in 2024 against what would have been a soft year for shipping given oil demand,” said Nolan. “However, tonne-miles are unlikely to lengthen further, meaning that total demand growth is likely to remain muted.”
On the product tanker side, he said, “the market is at peak tonne-miles currently, and good old supply and demand takes over from here”.
Another concern for tanker stock valuations is potentially declining asset prices. If tanker asset prices fall, so does a listed owner’s net asset value (NAV).
Nolan said: “Asset prices are beginning to roll over from near all-time record levels, and we expect they should decline further, based on our rate and cashflow projections. It is hard for equities to do well when ship prices and NAVs are falling.” He is projecting that tanker asset prices will fall around 10% over the next two years.
According to Haavaldsen: “Deeper into the cycle, we are now going to see pressure on secondhand tanker values. While 10- to 20-year-old ships have seen inflated values due to the build-up of a massive ‘shadow fleet’, we do not see huge downside to modern ships.”
There is “likely some downside to vintage values” but “newbuild prices should remain elevated as shipyard backlogs stretch further out in time”, wrote Haavaldsen.
“Importantly though, additional deflation in commodities prices — and building costs — would, in our view, be the biggest threat to the thesis of ‘still healthy earnings’ in 2025.”