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Weekly rollup | March 28-April 3 2022

Stocks Mentioned: Tellurian (TELL), International Paper (IP), ZIM Integrated Shipping Services Ltd (ZIM), Exmar NV (EXM), MPC Container Ships (MPCC.OL), COCHINSHI

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March 28 2022

Tellurian (TELL) has begun construction of its Driftwood LNG terminal in Louisiana. Driftwood LNG is an approximately 27.6 mtpa liquefaction export facility. Phase one will include two LNG plants with an export capacity of up to 11 million tonnes per annum (mtpa). Driftwood has received all the major permits required for construction and operation, has progressed detailed engineering to approximately 30% complete, and has finalized the purchase and lease of approximately 1,200 acres of real estate ensuring an ideal construction site with ample laydown and deepwater access for shipping.

The easy money has been made on this trade but as long as the war keeps LNG in the news, there could be further upside. Several other LNG stocks (GLNG, FLNG, AGAS.OL, NVGS, DLNG, GASS) and nat gas stocks (TCFF, EQT, RRC, SWN, CHK, AR) are also looking great chart-wise, so I'm in no hurry to exit. This is a sector that was left for dead since the 2014 oil price collapse. The recovery will be prolonged as the shortage isn't going away even if the war/invasion ends.

March 29 2022

Global pulp prices delivered to Northern Europe. Chart from $IP 2022 roadshow

March 31 2022

Some notes from my read of $ZIM's 2021 annual report:

On the container market -

For example, the comprehensive Shanghai (Export) Containerized Freight Index (SCFI) increased from 818 points on April 23, 2020, with the global outbreak of COVID-19, to 5,047 as of December 31, 2021. According to Alphaliner, as of December 31, 2021, global container ship capacity was approximately 25 million 20-foot equivalent units, or TEUs, spread across approximately 5,515 vessels. Furthermore, global container ship capacity has increased by 4.5% in 2021, while demand for shipping services is projected to increase by 6.7%, therefore the increase in ship capacity is expected to be less than the increase in demand for container shipping for a second consecutive year. Total global container shipping demand totaled approximately 231.5 million TEU in 2021 (including inland transportation) according to Drewry Container Forecaster as of December 2021. Global container demand has seen steady and resilient growth equaling a 6% CAGR since 2000 according to Drewry. According to Drewry, demand is expected to achieve an approximately 4.3% CAGR from 2021 to 2025.

Specific to ZIM -

In an attempt to meet the sharp demand increase during 2021, we have expanded our operated vessel fleet from 87 vessels as of January 1, 2021, to 118 vessels as of December 31, 2021 (including three purchased secondhand vessels already delivered out of a total of eight vessels purchased), as well as entered into strategic long term charter transactions. For example, we have entered into strategic agreements with Seaspan for the long-term charter of ten 15,000 TEU liquified natural gas (LNG) vessels and fifteen 7,000 TEU LNG vessels.

All of our 10 largest customers by revenue have been doing business with us for more than 10 years, and five of these customers have been doing business with us for more than 25 years. Four of our largest 10 customers by revenue in the fiscal year ended December 31, 2021, have been in the top 10 in each year since 2018. Our customers include blue chip companies as well as a growing customer base of small- and medium-sized enterprises. In 2021, our 10 largest customers represented approximately 17% of our freight revenues and our 50 largest customers represented approximately 32% of our freight revenues.

The market is significantly concentrated with the top three carriers — A.P. Moller-Maersk Line, MSC and COSCO — accounting for approximately 46.5% of global capacity, and the remaining carriers together contributing 53.5% of global capacity as of February 2022, according to Alphaliner. As of February 2022, we controlled approximately 1.7% of the global cargo shipping capacity and ranked 10th among shipping carriers globally in terms of TEU operated capacity, according to Alphaliner.

Not a fundamentals based recommendation, but for the technical traders among us, check out Exmar NV (EXM) on Euronext. The company should be a beneficiary of the European pivot to LNG. Primary trend is up on both daily and weekly charts.

And for my Indian friends who like shipping but absolutely insist on buying only 'desi' stocks, watch Cochin Shipyard (NSE: COCHINSHI). If India insists on buying sanctioned Russian, Venezuelan and Iranian oil, which might well happen since govt finances will come under pressure due to soaring gasoline prices (India has a convoluted system of taxation and subsidies), India would need to manage its own fleet of oil tankers much like Iran does. Stock looks sick but might be putting in a bottom. Watch for a move above the 20 week EMA of 325.

MPC Container Ships (MPCC.OL) announced the multi-year re-chartering of 5 vessels, adding $220 million in charter revenue and $180 million to its EBITDA backlog until 2027. The company also ordered two newbuilds, to be chartered out to our favourite company Zim Integrated Shipping (ZIM). The charters will commence in 2024 upon vessel delivery for a TCE rate of $39k/day for an initial 7-year period. MPCC is up 3.6% on the news today and is back to its earlier price levels, before the news on the block sale (see my March 25 note).

April 2 2022

In trucking terms, this is like chartering a 17' truck where a pickup will do. Reason? Small vessels are commanding a premium, which only happens when speed is important. Another sign of supply chain bottlenecks continuing.

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