Money talks as $1bn thrown at US tanker stocks in one day. Record session for the sector as Herbjorn Hansson and the tanker crowd are getting used to being in high demand
“Follow the money” That old piece of advice from the US Watergate era in the 1970s has plenty of relevance today, not least in trying to assess the psychology of shipping investors.
NAT joins $1bn club on mad, mad trading day Smart money or just mad money flowing from NAT investors?
And if you follow the money, the trail increasingly leads to tanker stocks — a few of them in particular.
Just shy of $1bn-worth of tanker shares were traded in New York on Monday in what is unofficially a record day for the sector — more than five times what has been traded in an average day over the past six months.
One tanker company, Herbjorn Hansson’s Nordic American Tankers, was responsible for $448m of the total in what may also be a single-day record. Not surprisingly, a distant second place was taken by the world’s largest product tanker owner, Scorpio Tankers, at $110m. Scorpio had the sector’s highest average dollar turnover before NAT nudged it aside in the past few weeks.
The numbers come from US investment bank Jefferies, where lead shipping analyst Randy Giveans has been scratching out old records and pencilling in new ones as unprecedented interest floods the market.
“The daily volume increases clearly reflect a sharp increase in attention and interest in tankers, driven primarily by the need for floating storage,” Giveans said of the dynamics created by a glut of global oil supply.
“Not many sectors, especially in energy, are going to have improved earnings from fourth-quarter 2019 to first-quarter 2020, then again from the first to second quarter. So investors continue to pile in before the upcoming earnings results.”
He said previous super-cycles have seen a similar trend.
When things get good in shipping, things tend to get really good. And it’s pretty clear that tankers have the hot hand right now
Jefferies’ Randy Giveans “When things get good in shipping, things tend to get really good. And it’s pretty clear that tankers have the hot hand right now,” Giveans said.
Hot indeed. VLCC spot rates were just below $190,000 per day on Monday and product-tanker rates near all-time records with floating storage in demand across vessel categories.
Evercore ISI has estimated one-third of tanker supply might be sopped up by storage needs, and one bank commodities analyst projected possible VLCC rates of $2m per day if there is another collapse in oil prices.
So investor money continues to flow in.
For perspective, the six-month average trading volume of the 10 tanker companies under Giveans’ coverage is $18m per day.
The average over the past month doubled to $36m.
Over the past week, the number jumped to $62m.
On Monday, it topped $100m.
Over six months, Scorpio Tankers has the top average daily turnover in dollar terms at $43m. NAT is only fifth at $19m.
NAT tops Scorpio
But NAT moved to third in the past month at $61m per day, then to first in the past week at $176m, topping Scorpio’s $123m.
“Scorpio Tankers has always been the most liquid tanker company — that’s part of the attraction from hedge funds,” Giveans noted.
While it is not trading at NAT’s unit volumes, Scorpio is worth more per share, closing on Monday at $26.64 to NAT’s $7.20.
“Remember, while volume is important, dollar volume is more important,” one equity analyst said recently.
Tanker stocks could double share prices by Christmas. Indeed, when Deutsche Bank analyst Amit Mehrotra culled 10 of 16 shipowners under his coverage on 3 April, he set the criteria for staying on his list: a $500m market capitalisation and daily trading volume of $5m to $10m, but preferably $20m.
In the recent rally, more tanker companies are hitting those numbers with ease, though sustainability remains a question amid predictions of a rates collapse in the year’s second half.
Frontline, DHT Holdings, Teekay Tankers and Euronav have all traded more than $50m per day over the past week.
Where is the money coming from? At least in part, it may be coming from shipping investors who once were more interested in betting on dry bulk, Jefferies’ figures show.
Seven dry bulk stocks under Giveans’ coverage have traded an average of $3.2m over the past six months. But that has halved to a $1.5m average per day over the past month, and up only a tick to $1.6m in the past week.