Monday, January 19, 2009
Dry Bulk Stocks: The Good Start of 2009 Cant Hide The Problems
Monday, 19 January 2009
Last year was a nightmare for shipping industry and of course for the stocks of the sector’s companies, especially for the dry bulk shippers. Shares of drybulk shipping companies were –and still are- among the victims of the harsh economic crisis that hurt the global economic and banking system. The former stars of the stock market, that during the last couple of years gave investors tremendous returns, experienced a dramatic year with huge losses, from September onwards. According to analysts and venture capital CEO’s this was a logical development, as the spread of crisis to the real economy hurt shipping industry and especially drybulk shipping companies. For example, as the global economy slowed, steel demand slipped, which in turn is dragged down drybulk rates. Steel, as well as the main raw material for its fabrication, iron ore, are hauled across the world's oceans by dry bulk vessels, and freight rates tend to trade in step with steel prices.
But the beginning of 2009 leaves a glimmer of hope, as the situation in the dry bulk sector –as it appears on the stock market indexes- looks to be stabilizing. With the Dry Bulk Index (BDI), which tracks the cost of hauling commodities like iron ore and coal, posting a healthy number of consecutive upward sessions, optimism seems to be returning at the dry bulk shipping sector, which has been plagued by the sharpest rate fall in its history. Last week, the BDI reached 911 points and it is now trading close to its highest point since October of 2008 and the owners of capesizes can finally have something to smile – or at least grim – about.
This improvement can be also read at the prices of the most dry bulk stocks. From the beginning of the year the majority of them has returned to green, giving investors positive returns. More specifically, until last Friday January 16 Danaos Corp. was gaining about 15.53% (at $7,81 per share), Dry Ships 36.96%, Aries Maritime was up by the impressive 151.5% - it is the best performance among all Hellenic dry bulk shippers which are listed in New York Stock Exchange- and Tsakos Energy Navigation was gaining 30.67%. Also, Navios Maritime is 16.13% higher, Omega Navigation Enterprises 11.77%, Paragon Shipping 20.82% and Top Ships 27.60%. At the same time, Genko Shipping, Excel Maritime and Star Bulk are showing smaller gains of 3.1%, 5.95% and 9.80%. On the contrary, Diana Shipping’s stock was losing 6.26%, General Maritime 6.57%, Stealth Gas 9.75% and Eagle Bulk Shipping is almost stable losing a mere 0.16% in comparison with the end of 2008.
Without a doubt, this is a promising start, especially after a very bad and difficult year. At the same time, someone could support that the glass is half empty. If we compare the current value of shipping stocks with the levels of the beginning of 2008, the result is disheartening, as the losses are –or remaining if you prefer- huge. In comparison with January 16 2008, Excel Maritime shows the biggest drop during the last 12 months as it has shed 72.15% of its value (from $27.10 per share to $7.,46). In the same period Dry Ships lost 72.15% (from $52.43 on January 16, 2008 to 14.60 last Friday), Navios Maritime stock closed on Friday at $3.67 appearing a loss of 59.44% in comparison to its value on January 16, 2008 ($9.05) and Paragon’s Shipping stock last Friday traded at $13.68 that produces a discount of 58.04% compared to its closing price of $13.68 on January 16, 2008. The picture doesn’t change for Star Bluk’s stock which has lost 70.80% of its value, falling from $9.59 to $2.55 and OMEGA Navigation from $14.31 to $6.37 (-50.24%). Genco’s Shipping stock has retreated by 58.64% (from $39.90 to $14.80), and Eagle Bulk Carriers shows losses of about 68.83% and Freeseas stock closed last Friday at $1.39, 70.43% lower than January 16, 2008. General’s Maritime stock has already lost 54.11% of its value (now at $10.09 from $21.99 a year ago). For the stocks of Stealth Gas the losses stand at 65.88% (from $2.53 to $1.63), Tsakos Energy at 31.98% and Top Ships to 17.78% at $2.63 showing the smallest losses during the last 12 months.
So, as the picture of the stock indexes remains grim, some analysts remain pessimistic noting that even if demand comes back in 2009, there is still a strong chance of overcapacity due to the shipbuilding order boom that took place when rates were at their peak. According to the Wall Street Journal, in the last two years, 50 million tons of capacity have been added to the global fleet of 420 million tons. "But in 2009 and 2010, over 175 million tons is due to come into service. Some of these orders will need to be cancelled if shipping rates are to rise". "Given the worldwide steel output contraction, and indications of even less production in the months ahead, the dry bulk market appears unlikely to experience a major positive catalyst until next year, when contracted iron ore is likely to be priced at a substantial discount to 2008 prices," said Dahlman Rose analyst Omar Nokta in a recent report.
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