SHIPPING RATES PLUNGE, COMMODITIES AND STOCKS MAY FOLLOW
SHIPPING RATES PLUNGE, COMMODITIES AND STOCKS MAY FOLLOW by Chris Vermeulen for The Technical Traders
An almost immediate reaction to the Coronavirus outbreak in China and throughout most of the world has sent shock-wave 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 Chinese President urged top officials to refrain from “more restrictive measures” to contain the virus. It is our opinion that more restrictive measures are essential to efforts 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 suggest travel is very restricted, face masks are very 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 $2500 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 Corona Virus.
SEA SHIPPING SECTOR ETF – DAILY CHART
Shipping stocks are taking a beating. Factories are shut down, the product is not being shipped, and even product ready to be shipped 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.
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.