ETF MANAGERS GROUP COMMODITY TR I BREAKWAVE DRY BULK SHIPPING ETF
Buy: market ($5.03)
Take profit: $8.6
Bulk cargo - iron ore, coal, grain and other mineral and agricultural products - is by far the largest cargo segment in the world.
This segment suffered quite a lot due to the closure of factories around the world, and in particular in China, the world's largest consumer of goods. Restrictions were imposed on transport communications, up to the introduction of quarantines, to control the spread of the outbreak of coronavirus. China's exports in February fell by 20.7% year on year.
Since September 2019, BDRY has declined by more than 80% and is at its historic low.
The current price level is quite attractive for ETF holding with hold until the end of the year.
• We believe that the main negative from a new type of coronavirus is already priced. At the same time, China has created global conditions in the fight against the spread of the virus and at the moment, the percentage of cases of growth in the country is sharply reduced. Key enterprises returned to work with the necessary precautions. Other countries clearly understand the severity of the problem and take appropriate measures to contain the epidemic.
• G7 governments and monetary authorities are taking unprecedented measures to maintain their economies and stimulate domestic demand.
• During the period of the epidemic and quarantines, economic relations are broken, which leads to a reduction in inventories. As soon as the world begins to cope with the threat of the virus and production begins to recover, inventories will need to be replenished. This may create supply shortages in the maritime freight segment. For example, in order to stimulate its economy, China plans huge investments in infrastructure, which will lead to a significant increase in imports of iron ore and coal for steel production.
• The current low demand for sea freight for bulk goods has led to lower freight rates to very painful levels for ship owners. If the crisis continues for a long period, some of the companies (especially holders of old ships) will leave the market, which will reduce supply in this segment.
In addition, from January 1, 2020, the International Maritime Organization tightened standards by seriously reducing the maximum sulfur content in marine fuel (bunker fuel oil) from 3.5% to 0.5%, which led to the use of low-sulfur fuel, or the installation of scrubbers.
Research by the Swedish company SEB shows that by the beginning of 2020, less than 2,000 vessels out of the total merchant fleet (about 60,000 units) have installed “scrubber” systems. Taking into account the production capacities of existing manufacturers of “scrubbers”, a shortage of finished “scrubbers” is expected in the next few years, which will lead to higher prices for low-sulfur fuel (LSFO) and, consequently, to increased financial costs for shippers.
SummaryWe believe that a new type of coronavirus will have a rather negative, but not long-term impact on the global economy. Given the unprecedented incentive measures, we expect the global economy to recover in the second half of 2020. Perhaps a decrease in demand for transported goods will continue to put pressure on the shipping industry for a few more months. But in the medium term, we expect BDRY to return to a value of $8 - $9.