Global shipping prices are dropping while commodities and inflation expectations remain aloft
When viewed in the context of history, it’s not something that makes sense right now. Global shipping costs – with commodities like crude oil a major component of the shipped product – are dropping, which implies demand has dropped.
Yet commodities and inflation expectations really have not caught on yet, other than a slight downward tug recently (as compared to the entirety of the post Q1 2020 period).
Who’s wrong here? And why?
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The above chart is really long term. Your hash link to /2021/12/17/as-fomc-rides-off-into-the-sunset/ has a much shorter term view, but stops at the end of 2021. Can you post something in the mid-range? Like Oct 2019 to now?
Well, if global trade is to slow then the demand for shipping could decrease.
Commodities can still be in high demand even if global trade were to decrease.
Potentially, this is signalling more on-shoring of industry whereby commodities will still be needed to produce goods but not shipped over seas as much.
It could also be not so much that one is right or one is wrong but about timing. The shipping component is looking out further than the other 2 and forecasting slower growth and trade.
Dry bulk shipping is rolling over, but not the tankers:
https://stockcharts.com/h-sc/ui?s=DHT
https://stockcharts.com/h-sc/ui?s=FRO
https://stockcharts.com/h-sc/ui?s=TNK
https://stockcharts.com/h-sc/ui?s=EURN
I’m also leaning towards commodities, including oil, going down in the short/medium term. But the tankers are bullish, and this at the traditionally seasonal low time of the year (winter is the seasonal high). There are some uniquely fundamentals aligning their way:
– Ton-miles going up with Europe buying from all over the world and Russia selling all over the world
– More and more refined product produced close to the source also increasing ton-miles
– Aging legit and non-legit fleet spurring on scrapping
– Tighter environmental regulations than ever disincentivizes retrofits
– Shrinking tanker fleet a certainty over the next 3-5 years
– Almost total investor apathy
Super helpful, Mo. Thanks!