Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Shipping Rates Plunge: Commodities, Stocks Could Follow

By Chris VermeulenStock MarketsFeb 12, 2020 02:21PM ET
www.investing.com/analysis/shipping-rates-plunge-commodities-stocks-could-follow-200506991
Shipping Rates Plunge: Commodities, Stocks Could Follow
By Chris Vermeulen   |  Feb 12, 2020 02:21PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

An almost immediate reaction to the Coronavirus outbreak in China and throughout most of the world has sent shock waves through the global markets – particularly seen in shipping and oil. The actions within China to attempt to contain the virus spread include shutting down entire cities and setting up mass quarantine events. It is estimated that as many as 8+ million people were quarantined within cities in China throughout the Chinese New Year.

Chinese President Xi Jinping warned recently that the Coronavirus, and the efforts to stop it, may greatly reduce the Chinese economy over the next few months. The President Xi urged top officials to refrain from “more restrictive measures” to contain the virus. It is our opinion that more restrictive measures are essential to contain the spread of this virus and that further contraction in the Chinese economy, as well as other economies, are almost set in stone at this point.

Information we've received from some friends living in China and Hong Kong suggests that travel is very restricted, face masks are scarce, people are staying inside their homes and surviving as family units within very close contact with one another. They are scared, trapped and unable to do anything other than try to wait this out. Imagine what this is doing to the local economies, shops, offices and businesses?

Reflectively, global shipping rates have collapsed over the past 30+ days as one of the first signs of the contraction in the global markets. As of December 31, 2019, both Tanker and Dry-Bulk rates were hovering near $14,000 per day. Now, this rate is near $2,500 per day – a -82% decrease. As you consider the broader aspects of this massive decrease in shipping rates, consider the global contagion event that may setup if the Belt-Road region is adversely hit with the virus.

VLCC Earnings Vs. Tanker And Dry-Bulk Rates (blue)
VLCC Earnings Vs. Tanker And Dry-Bulk Rates (blue)

Source: Bloomberg.com

Shipping stocks are taking a beating. Factories are shut down, the product is not being shipped and as for goods ready to ship, many don't want to take delivery for the time being.

From a short-term standpoint, this sector is looking oversold, but depending on how much the virus spreads we could see another 20% from the current price.

Daily Invesco Shipping ETF
Daily Invesco Shipping ETF

China's Belt-Road Infrastructure Projects

China's Belt-Road initiative consists of massive infrastructure, port and other projects throughout Europe, Asia, India, Pakistan, Iran, Turkey, Russia, Africa and other nations. These projects have been initiated over the past 5+ years and are well underway. We believe the spread of the Coronavirus may follow a path along with the Belt and Road projects and potentially infect a larger number of individuals over the next 30+ days than originally expected. If this virus moves into the Middle East or Africa, containment may become very difficult.

China's Belt And Road Shipping Routes
China's Belt And Road Shipping Routes

The reality is that Shipping and Commodities could see a dramatic price decline as this virus outbreak continues over the next 60+ days. Reports are already starting to hit the news wires that auto and manufacturing supplies are starting to pile up at ports in China. Without a functioning manufacturing sector and workers to keep everything running, China's economy will grind to a halt very quickly.

This translates into lower oil prices, lower raw material prices and higher metals prices. A capital shift will continue to take place throughout the world where capital will move away from risky environments and toward more secure investment environments. Thus, capital will move away from Asia, India, the Middle East and potentially Europe and toward the USA, Canada and possibly Mexico. Everything depends on what happens over the next 60-to-90+ days.

Crude Oil

This Monthly crude oil chart shows how quickly oil rotated lower in January 2020. Currently, crude oil is trading near $50 per barrel and may break lower toward the $44 to $46 price level before finding any real support. Overall, our research team believes that oil may reach as low as $35 to $36 ppb before reaching a bottom. You can read our earlier research here. Within that research, dated November 19, 2019, we highlighted our earlier predictive modeling research from July 2019 suggesting oil would break substantially lower in November 2019 and again in February 2020. We predicted this downside move in oil nearly 8 months before it happened.

Monthly Crude Oil
Monthly Crude Oil

This monthly Transportation Index chart highlights the sideways FLAG formation setting up in the U.S. Transportation sector. If the U.S. market breaks lower as a result of slower global economic activity, we think that we will see the Transportation Index fall very quickly to levels below $9,500. A breakdown in the that index would be an early warning sign that the U.S. economy is headed toward a recession or contraction. Global shipping has already confirmed this event is taking place – yet the U.S. transportation sector has not shown much weakness.

Monthly Dow Jones Transportation Index
Monthly Dow Jones Transportation Index

Traders need to be aware of the risks in the markets and of the continued capital shift that is taking place around the globe. Capital is running away from risk and pouring into more stable markets. The ultimate risks to the global economy are for those nations where debt/economy levels are fragile, which is why we highlighted the Belt Road project. If China enters a protective mode where its central bank attempts to bail out Chinese companies/initiatives, we believe the Belt Road project could become a great risk. And we think that this could happen very quickly given the current market environment.

Shipping Rates Plunge: Commodities, Stocks Could Follow
 

Related Articles

Shipping Rates Plunge: Commodities, Stocks Could Follow

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (6)
Aditya Aditya
Aditya Aditya Feb 12, 2020 10:24PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
this guy is usually wrong..the mkt does exactly the opposite. there is never an I told u so. lol
William Smith
William Smith Feb 12, 2020 6:39PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
So it's either going to get worse or it isn't. Brilliant!!!
Justin McNaughton
Justin McNaughton Feb 12, 2020 6:39PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
the stock market will go or it'll go down, unless it doesn't !!
Solomon Samuel
Solomon Samuel Feb 12, 2020 5:15PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
you knew 8 months before Coronavirus outbreak will happen-  I like the analysis what will happen in coming 30 to 90 days and if the virus moves into the Middle East and/or Africa,
Nicolaas Ferreira
Nicolaas Ferreira Feb 12, 2020 4:54PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I have read his articles and acted on them. All analyst are playing a guessing game and one day when their prediction come true, they say: "I told you so". What most analyst do is that they spend hours and hours looking for charts that support their theory. Rather look at the price action and you will be much more successful.  I have lost thousands of rands reading this nonsense. Please get a real job.
Stephen Dresar
Stephen Dresar Feb 12, 2020 4:12PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Broken clock. At some point, he's gonna be right by pure chance...
Pete Sprague
Pete Sprague Feb 12, 2020 4:12PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
And it will be "See I predicted it"...
Ramesh Shah
Ramesh Shah Feb 12, 2020 3:46PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Chris, how many times have you been wrong and right in past 5 yrs. Qqq has risen 209%
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email