Dry Bulk Shippers Sailing High
After Tuesday’s near drowning in the dry bulk shipping industry, the sector seemed headed for calmer waters Wednesday as investors made the stocks’lower prices a buying opportunity.
On Tuesday shipping rates on Capesize ships, the largest vessels, dropped 4%, while the rates on Panamax, which are ships of the maximum dimensions that will fit through the locks of the Panama Canal, and Supramax, which are the smallest of the three vessels, remained about the same, said Natasha Boyden, an analyst at Cantor Fitzgerald. The forward looking rates for 2008 were down between 10% and 14%. The forward rate market now forecasts average daily rates for Capesize, Panamax, and Supramax vessels of $124,844, $67,667, and $57,531 down from $144,016, $77,042, and $64,000.
The last 12 months have seen enormous gains in the shipping industry as steel production and demand for raw materials in China has soared. As more ferry loads of coal, steel, grains and other commodities have been chartered it has caused upward pressure on shipping costs. That’s good news for the dry bulk shipping industry, which has seen even its worst stocks skyrocket as much as 150% in the last year.
This seemed to spark a sell off on Tuesday as investors that had made a significant amount of money in dry bulk shipping stocks in the last year seemed ready to jump overboard. Of course it didn’t help that Chinese steel officials and importers made their displeasure with high shipping prices known ahead of upcoming negotiations for iron ore prices in 2008. (See “ Dry Bulk Shippers On The Rocks?) By downplaying the demand for steel and holding off or slowing down on chartering ships, Chinese steel producers and importers can rattle the shipping industry, since a decrease in demand for steel would mean a drop in shipping prices. Boyden said Chinese steel producers are trying to ‘spook’ the market.
Their plan seemed to work. The Baltic Dry Index, which is managed by the Baltic Exchange in London, fell 230 points Wednesday to close at 10,656. The index measures dry bulk shipping rates on 40 shipping routes on a time charter and voyage basis.
Boyden said iron ore suppliers in China are attempting to receive compensation for rising shipping rates, which could cause significant volatility in dry bulk rates in the short term. “However, Chinese steel mills will likely only be able to draw down on inventories for a limited period of time, so we see this as more of a short-term dilemma,†she said.
Even so, Boyden remains bullish on the dry bulk sector for the next several years as commodity demand stays strong especially in developing countries, which in turn will keep freight rates higher as the number of fleets remains insufficient to keep up with demand.
Boyden sees Tuesday’s pullback in the sector as a buying opportunity.
Television stock-ranter Jim Cramer seemed to agree as he reiterated his buy rating on Diana Shipping on CNBC’s Stop Trading! segment on Wednesday because of strong demand in China. Diana Shipping was up 9% off Tuesday’s 12% plunge, to close at $42.80.
DryShips (nasdaq: DRYS - news - people ) shot up 9.1%, or %9.86, to $117.86 at the close on Wednesday. Excel Maritime Carriers (nyse: EXM - news - people ) soared 10.5%, or $6.68, to close at $70.59. FreeSeas (nasdaq: FREE - news - people ) rose 2.3%, or 18 cents, to $8.17 and Quintana Maritime Limited (nasdaq: QMAR - news - people ) increased 3.6%, or 97 cents, to $27.90.
Source: www.hellenicshippingnews.com
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