Shorting Shipping
What is driving the significant demand to borrow shares in the global shipping companies that ferry essential commodities around the world? The Baltic Dry index, which measures dry bulk shipping activity, has halved in value since September. Yet Reuters notes the recent decision by China to hike electricity prices for the first time in two years should stimulate local demand from the world’s largest coal consumer – a good thing for the shipping companies. We look at investor sentiment towards US listed shipping groups including: Genco Shipping and Trading (NYSE:GNK), Overseas Shipholding Group (NYSE:OSG), Nordic American Tanker Shipping (NYSE:NAT), Daina Shipping Inc (NYSE:DSX) and Navios Maritime Partners (NYSE:NMM).
The Bloomberg Relative Value (RV) screen of the Maritime Transportation companies shows an average short interest of 3.62% across the sector. Lloyds List highlights the dynamics at play amongst the niche shipping players. Small cap, Genco Shipping and Trading tops the list with 35% of its total shares outstanding on loan, which represents almost all the stock that is available to be borrowed, as the shares have drifted to fresh lows. Despite this, institutional owners who make their stock available to be borrowed have been gradually increasing their holdings since January to almost 10 million shares.
The shares of Overseas Shipholding Group are down over 25% year to date and have just hit an annual low. The company, which specializes in energy transportation of oil, has seen short interest rise to an annual high of 33% of total shares – up 25% in a month. Again, almost all the supply that can be borrowed is out on loan. Despite this, institutional investors have been gradually increasing their holdings all year to 11 million shares.
Nordic American Tanker Shipping has seen its share price collapse by a third over the last year while short interest has doubled to reach an annual high of 16% of total shares. Again, almost all the lendable supply of shares is out on loan and institutional investors who lend take a different view, having increased their holdings since late March by 20%.
Stalwarts of the dry bulk shipping industry, Diana Shipping Inc. and Navios Maritime Partners see low short interest – but rising - of 2% and 5% of total shares. Institutional investors in Diana increased their holding sharply in January and currently own 21%. Demand to borrow Navios is high, with the shares that are available to be borrowed out on loan.
Bottom line
Demand to borrow is high across the sector, despite long only investors who lend increasing holdings. The average utilization stands at over 55%, meaning that over half the available stock in the whole sector is out on loan. The companies in the Top 11 of the Bloomberg RV screen are driving this trend, with eight of them seeing utilization over 80% - meaning it would be hard to short more of these stocks!
