DMFR Insights

• Container shipping: The container shipping sector looks set to continue its extraordinary profitability cycle in 2022, given the current supply chain logjams and
the rising threat of the Omicron variant. We expect the situation to normalise slightly after the Chinese New Year when the manufacturing activities in the
country will be temporarily suspended. However, traditional seasonality indicates higher trade demand thereafter if the supply bottlenecks remain acute,
ensuring high profits for the global container shipping sector. This will continue to spill over to stock investors via soaring share prices and generous dividends.
• Port and terminal operators: Apart from facing congestion issues throughout 2021, the global port industry encountered additional headwinds from the new
Covid variants and also the swift shift towards a more hawkish stance by major central banks in 4Q21. These headwinds dampened the rally in port equities.
After three consecutive quarters of growth (3Q21: +3.8%, 2Q21: +9.6%, and 1Q21: +8.9% -- QoQ), the Drewry port equity index declined by 3.3% in 4Q21.
Cumulatively on YoY basis, the equity index gained 19.9% in 2021 (vs. 2020: -17.5% and 2019: +19.7%). Global/International terminal operators (GTO/ITO)
continued to outperform their regional peers (regional terminal operators - RTO) with a significant variance of 25.2 percentage points in 2021.
• Dry bulk shipping: Dry bulk trade flourished in 2021, with all indices and most share prices recording their best levels ever. Steep recovery in demand for dry bulk
commodities after some respite from the pandemic coupled with supply constraints led to a huge surge in the freight rates, cash flows and subsequently stock prices.
However, 4Q21 saw the rates softening primarily due to demand taking a hit as commodity prices soared and stimulus packages tapered off. As 2022 kicked off, the
slowdown has continued, and as of 19 January 2022, the average freight rates have touched around 10-month lows.
• LNG shipping: Drewry LNG shipping equity index increased by 54.3% in 2021, outperforming S&P 500 which grew by 26.9% on the back of strong LNG prospects in
2021. In 4Q21, Drewry LNG shipping equity index increased by 13% while in YTD 2021 (till 21 January 2022), the index declined by 26.5% driven by weakness in the
broader equity market and decline in LNG shipping spot rates. LNG shipping assets have become more attractive for long-term investors amid the energy transition. The
same can also be highlighted by the acquisition of three independent LNG shipping companies by private equity players in 2021.
• LPG shipping: Stock prices of all three LPG companies under our coverage declined in 2021, as they were mainly weighed down by the fall in spot LPG shipping rates -
Navigator Holdings (NVGS) share piece declined by 19%, BW LPG (BWLPG) by 15.2% and Stealthgas Inc (GASS) by 10.2%. YTD 2022 (as of 21 January 2022,) BW LPG
declined by 6.1%, the most among the three LPG companies we cover (NVGS -0.7% and GASS -0.5%). We expect LPG stock prices to benefit from expected
strengthening in LPG shipping rates.
• Crude tanker shipping: Drewry crude tanker equity index dropped by 18.9% in 4Q21, but it recorded a gain of 1.7% in 2021 primarily because of the rally
in late September and October ahead of the winter demand. The index underperformed key market indices – S&P 500 moved up by 10.6% whereas Dow
Jones Industrial Average (DJIA) and Nasdaq Composite gained 7.4% and 8.3% respectively in 4Q21. Despite the jump in both global oil demand (up 5.4
mbpd in 2021) and Brent oil prices (up 51.5% in 2021), crude tanker day rates failed to increase on expected lines because of the continued lack of crude oil
trade volumes amid curtailed supply from OPEC+ and reliance of major oil-importing countries on their inventories/strategic petroleum reserves (SPR). Meanwhile,
second-hand values strengthened during the year on the prospects of market recovery and rising newbuilding prices.
• Product tanker shipping: Drewry product tanker equity index declined by 14.3% in 4Q21 as it fell in November amid concerns of Omicron, which is the most
contagious variant of the virus thus far. The index underperformed key market indices such as S&P 500 (10.6%) and Dow Jones Industrial Average (7.4%)
during the quarter. The exponential rise in new infections in recent weeks can force several major economies to impose new rounds of mobility
restrictions that will lead to reduced demand and trade of refined products. Accordingly, we expect the product tanker market to come under pressure in
1Q22 before moving upwards in 2Q22.