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Friday, September 18, 2009

Dry Bulk Stocks Fight Falling Baltic Dry Index

Friday, 18 September 2009

Can a soggy summer trigger a rebound for bulk shipping prices? Governments around the world have injected hundreds of billions of taxpayer dollars into stimulus plans in an effort to buoy the global economy after the worst setback since the Great Depression. The Baltic Dry Index (BDI), however, is proving that it takes a lot more to support the dry bulk shipping sector, which is considered a leading indicator by some economists. Michael McDonough at RealmMoney.com sees continued struggles for the sector, but indicated that a record U.S. harvest could boost rates for small and midsize vessels.
McDonough suggests that waning Chinese iron ore demand could weigh on the daily rate for capesize vessels, which this morning broke below $30,000. However, according to his report, the U.S. Department of Agriculture is expecting a massive corn and soybean crop this year, potentially lifting demand for small to midsize vessels.
Components of the Dry Bulk Shipping Stocks Index would welcome a strong harvest, but it will take continued economic recovery to bring these stocks, many of which still trade more than -50% below 52-week highs, closer to pre-crisis levels. According to a report earlier this month in The Economic Times, Shipping Corporation of India Chairman and Managing Director S. Hajara sees "tremendous supply side pressure until 2011."
Still, investors are signaling they believe the worst is over for the industry. Shares of Safe Bulkers and Navios Maritime Holdings have more than doubled over the last six months. Kirby, the sector's largest U.S.-listed player by market-cap, has rallied by 50% over the period, though Diana Shipping, the runner-up by market-cap, remains negative.
In the last week DryShips, Star Bulk Carriers, and Eagle Bulk Shipping, among others, have added 10% or more.
The Dry Bulk Shipping Stocks Index has one of the 40 lowest average price to earnings ratios of tickerspy's more than 250 equity Indexes.
Source: Indie Research