Thursday, May 19, 2022
Wednesday, 26 January 2022 16:36

Seven Capital: Quarterly reports for the 4th quarter of 2021

2022 Global Economic Outlook
The overriding message from almost 50 financial institutions across Wall Street and beyond is that global economy conditions still look good, but the roaring rallies powered by the reopening are history. Growth will ease, returns will moderate, while risks abound, but so do opportunities.

Although the fastest pace of recovery now lies behind us, we expect strong global growth in the coming quarters, thanks to continued medical improvements, a consumption boost from pent-up saving, and inventory rebuilding. For 2022, global GDP is likely to rise around 4.50% based on most bankers’ expectations.

Interest Rates — It’s coming...and it’s coming fast!
The Federal Reserve will likely raise interest rates three to four times this year and will start its balance sheet runoff process earlier, marking one of the central bank's most hawkish policy pivots in years. Rapid progress in the U.S. labor market and hawkish signals in minutes from the Dec. 14-15 Federal Open Market Committee suggest faster normalization has put Fed Chair Jerome Powell in a position to raise rates earlier than previously anticipated to counter price pressures, if necessary, even as the pandemic poses an ongoing challenge to the economic recovery.

10yr US Treasury has climbed to 1.80% amid increasing conviction the Federal Reserve will raise rates at least three times, beginning in March, to counter price pressures. Minutes from the Fed’s December meeting, when it decided to move more quickly to wind down bond-buying, will be closely watched later. Bond traders don’t see the end of inflationary pressures any time soon. with a tight labor market possibly exacerbating cost increases.

Drybulk Sector Outlook — Put your money where your mouth is...
2021 was an outstanding year for the drybulk sector with freight rates reaching levels last seen 13 years ago. We expect the recent weakness to be a mid-cycle dip, as low growth supply is likely to be the main driver of the dry bulk market next year. The new supply of tonnage over the next three years is very limited, with new deliveries been expected to slow significantly over the next two years, leading to a sharp drop in fleet growth. Do not forget that the orderbook in terms of absolute numbers is at the lowest level since 2005. This will help to keep freight rates high, even that if the dry-bulk fleet capacity grew by 3.5% over the past 12 months.

In our opinion, the driving force for new investments should be the view on the freight market. If someone has a firm view that the freight market will remain strong over the next 18-24 months, investing in secondhand tonnage in the next 2-3 months, could be a quite safe bet. On the other hand, investors feeling uncertain about the prospects of the charter rates, should stay away from new investments.

Global Energy Crisis and Oil Prices
Oil and gas prices ended 2021 at unexpectedly stratospheric levels. Economic recovery from the pandemic has boosted demand for gas and coal but their supplies have not been able to keep up. WTI - West Texas Intermediate – ended 2021 at $75.3 per barrel, while Brent UK ended at $77.2 per barrel both posting an increase of 56% and 51% respectively compared to 2020.
The oil market started 2022 as it ended 2021: with a rally. With supplies curbed and demand fears fading, there are bullish signals for prices this year. The energy crunch in Europe, supply disruptions in Libya and little or no progress on the Iran talks, all point to higher crude prices, while the longevity of the pandemic and the possibility of lower U.S. growth may mean demand will stay lower for longer.

Currently, WTI is trading above $78 for the first time since 2014, while Brent, the global benchmark, is over $81 for the first time since 2018. A rally in natural gas looks set to drive demand for oil as users switch fuel type.

Crude Tankers Outlook
2021 was an ugly year for tanker owners who are now looking towards 2022 with a reason for optimism but also concerns for the months ahead…
New global oil supply and growth forecasts could support tanker owners who believe the worst is now behind them, after earnings for shipping crude experienced a protracted loss-making downturn that has extended over the past five quarters. Any increase in oil demand could be met by rising supplies as stock are depleted, which will be positive for the tanker market as it expands seaborne volumes boosting demand.

We expect the direction of crude oil tankers conditions to stay flat in 2022. A positive development in the oil sector could be the growth in demand as air travel recovers, but their benefits to tanker owners and operators are to be hampered by continuing fleet expansion with most of ordered tonnage expected to hit the water in 2022.

Product Tankers Outlook
The oil demand shock has seen the global fleet of product tankers remaining at levels barely covering operating costs on key benchmark routes for protracted periods of 2021. After bigtime losses in the depressed freight market of 2021, the global fleet of product tankers is now looking for signals for a better year, with increased scrapping activity, expected rising air travel and a low fleet orderbook giving a hope for 2022.

A historically low orderbook is an encouraging sign, as current newbuilding pricing is high relative to the poor performance of the tanker market this year especially with the ongoing uncertainty. This is rather surprising taking into account that tankers are pretty much the only main shipping sector that has not experienced yet a big wave of newbuilding orders. A discouraging sign is that two thirds of the ordered vessels are expected to hit the water within 2022 adding pressure to the already depressed freight rates.

DRYBULK SECTOR INVESTOR QUARTERLY REPORT

CRUDE TANKER SECTOR INVESTOR QUARTERLY REPORT

PRODUCT TANKER SECTOR INVESTOR QUARTERLY REPORT

SHIPPING FINANCIAL MARKETS OVERVIEW SENIOR DEBT & PREF EQUITY INSTRUMENTS

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