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Friday, August 14, 2009

Shippers' Rates Still Face Deflation Threat

Friday, 14 August 2009

The Baltic Exchange's Baltic Dry Index (BDI) rose by 2.8%, after 10 previous days of decline. BDI August forwards are now trading above the current spot rate at 2765. However, fourth-quarter contracts further out on the curve are still trading at a substantial discount. Yesterday's positive statement from the Federal Open Market Committee helped to bolster investors' confidence in the current market, leading to an overall rally in equities. But this did not transfer very well to the dry bulk sector, which ended the day up but on mixed trading.
Concerns remain over future shipping-rate deflation, asset values and shippers' balance sheets.
The Baltic Capesize Index (BCI) gained 5.1% this morning, with the average daily rate for the vessels moving to US$46,117. Despite the recent declines in the spot rate, the forward market is still pricing in a drop of 13% for capesize rates by the fourth quarter.
The Baltic Panamax Index (BPI) rose this morning by 0.6%, with the average daily rate for the vessels moving to US$18,807. Unlike the capesize rates, the forward market is pricing in a decline of only 1% for panamax rates by the fourth quarter. This means we could be nearing an interim bottom for panamax rates but could still see more slippage on cape rates. The Baltic Supramax Index fell by -0.4% this morning, with the average daily rates for the vessels moving to US$17,707; the forward markets are currently pricing in a 7% decline for these rates come the fourth quarter.
My Dry Bulk Shipping Index (DBSI) gained 1.4% yesterday on the back of improved market sentiment stemming from constructive comments from the Fed and a slight appreciation in Forward Freight Agreement contract prices.
Genco Shipping (GNK - commentary - Trade Now) was the index's best-performing component, with a gain of 5.3%, while Paragon Shipping (PRGN - commentary - Trade Now) was the leading laggard, with a loss of 5.6%.
In other news, Star Bulk Carriers (SBLK - commentary - Trade Now) released earnings yesterday after the market close, coming in under Street estimates with a loss of 6 cents per share.
Star Bulk President and CEO Akis Tsirigakis said, "Our company remains financially strong and strategically positioned to take advantage of the protracted volatility in the shipping and financial markets. This is evidenced by the fact that after securing lender approval we were able to declare the previously announced dividend of 5 cents per share for the second quarter of 2009, the first shipping company to declare a dividend after having suspended it. Our relatively low debt level and strong cash position together with our universal shelf registration statement filed earlier in 2009 give us the flexibility to take advantage of opportunities as they arise."
Star Bulk shares were trading down slightly less than 1% in after-market trading on the news. The company is hosting a conference call this morning to discuss the results in further detail. It is interesting to note that Star Bulk has fixed 100% of its fleet for 2009 and 77% for 2010.
Source: The Street