Baltic Dry jumps another 14%, bulk becomes hot stock again

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Tokyo: Stock markets across Asia got to work today buying as much bulk shipping stock as they could as a pattern became a trend – the ascendancy of the Baltic Dry Index.
The Baltic Dry Index, a measure of shipping costs for commodities soared 14 percent in London yesterday to 1,498 points, extending a 15 percent jump on the previous day, to the highest level since October 16. That’s a 13-day winning streak, the longest since May 2007.
The daily rates for capesizes, which are the largest vessels, soared 21.5% to $26,495, up from $21,810, on Wednesday. Smaller Panamax ships are up 12.9%, to $9,040.
If freight rates remain high for a sustained period of time, it could lead to a 20.0% rise in ship values, Dahlman Rose analyst Omar Nokta said.
This is good news given that many dry bulk companies have breached their loan covenants due to slumping vessel values.
One- and two-year capesize charter rates would need to surpass $40,000 per day for ship values to increase 50% -- the level needed for companies to return to good standing with their lenders, Nokta added.
Cantor Fitzgerald analyst Natasha Boyden is more bearish. She tells Bloomberg the market shows little sign of recovering in the near term because of the large fleet supply growth on the horizon. Even with the rise in cancellations, the supply of vessels will outpace demand. "We believe recent output cuts by major iron ore miners along with indications that Chinese industrial activity continues to weaken could make 2009 a difficult year for dry bulk rates," she said.
Meanwhile, Boyden admits that iron ore stockpiles at Chinese ports have fallen to about 60.0 million tons in the first quarter of 2009, boosting demand for capesize vessels as miners Rio Tinto, Vale and BHP Billiton secure ships to carry iron ore to China. In addition, the annual iron ore price negotiations, which usually start in April, are already in full swing with Chinese steel mills pushing for a 40.0% price decrease retroactive to Jan. 1 from major iron ore producers.
Lower iron ore prices would push demand higher. Yet there are still about 65 to 70 capesize vessels anchored, Boyden said, which could put downward pressure on rates. [06/02/09]