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Shipping News Should Get Better
Most of the dry-bulk shippers having reported their latest quarterly results, and, with the odd exception the overall result is that the group failed to live up to expectations. Analysts hadn't really been overly positive on the group, expecting earnings to remain relatively flat on a sequential basis, but a combination of some slippage on the revenue side due to an unexpected drop in charter rates and higher expenses brought bottom line numbers in below target.
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Shipping Shares Remain Range-Bound
As a result, the shares of the principal dry-bulk fleet operators like Dryships (NASDAQ: DRYS), Excel Maritime (NYSE:EXM), Genco Shipping (NYSE:GNK) and General Maritime (NYSE:GMR) continue to remain in the same range-bound pattern, although slightly under last year's levels, that has characterized their trading for most of the past year.
But despite the underwhelming nature of the recent numbers from these shippers, some analysts are predicting fairer economic winds will prevail in the second calendar quarter of 2010, thus lifting shippers fortunes.
Iron Ore Pricing Dispute
Analysts note that much of the earlier poor performance stems from the downward pressure on charter rates resulting from a long-standing dispute between China and its principal iron ore suppliers: Vale (NYSE:VALE), Rio Tinto (NYSE:RTP) and BHP Billiton (NYSE:BHP). Chinese iron ore imports slipped somewhat as a result, with a marked drop in April as buyers and producers wrangled over price increases that have resulted in ore prices nearly doubling.
China's Accelerated Iron Ore Demand
Rising steel production in China due to increased demand for autos and appliances and soaring steel exports by China virtually guarantees that the Chinese will be obliged once again to start accelerating their imports of iron ore, in spite of the price increase of the material. The knock-on effect will be to raise demand for bulk carrier ships, thus raising day charter rates. The evidence that this process has already begun can be seen in the recent rally in the Baltic Dry Index - a key industry measure of spot charter rates. Recently the index made a new high on signs of firming in Asian rates.
The Bottom Line
China's steel production is soaring. While domestic iron ore production has increased four-fold over the last 10 years, the poor quality of this home-grown supply makes it uncompetitive with foreign supply. China's reliance on imports now stands at 72% and that isn't likely to change overnight. As a result, demand for the ships in the global dry bulk fleet can only increase. (For additional stock analysis, check out Long-Term Utility Dividends.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 7 Tools Of The Trade
Shipping Shares Remain Range-Bound
As a result, the shares of the principal dry-bulk fleet operators like Dryships (NASDAQ: DRYS), Excel Maritime (NYSE:EXM), Genco Shipping (NYSE:GNK) and General Maritime (NYSE:GMR) continue to remain in the same range-bound pattern, although slightly under last year's levels, that has characterized their trading for most of the past year.
But despite the underwhelming nature of the recent numbers from these shippers, some analysts are predicting fairer economic winds will prevail in the second calendar quarter of 2010, thus lifting shippers fortunes.
Analysts note that much of the earlier poor performance stems from the downward pressure on charter rates resulting from a long-standing dispute between China and its principal iron ore suppliers: Vale (NYSE:VALE), Rio Tinto (NYSE:RTP) and BHP Billiton (NYSE:BHP). Chinese iron ore imports slipped somewhat as a result, with a marked drop in April as buyers and producers wrangled over price increases that have resulted in ore prices nearly doubling.
China's Accelerated Iron Ore Demand
Rising steel production in China due to increased demand for autos and appliances and soaring steel exports by China virtually guarantees that the Chinese will be obliged once again to start accelerating their imports of iron ore, in spite of the price increase of the material. The knock-on effect will be to raise demand for bulk carrier ships, thus raising day charter rates. The evidence that this process has already begun can be seen in the recent rally in the Baltic Dry Index - a key industry measure of spot charter rates. Recently the index made a new high on signs of firming in Asian rates.
The Bottom Line
China's steel production is soaring. While domestic iron ore production has increased four-fold over the last 10 years, the poor quality of this home-grown supply makes it uncompetitive with foreign supply. China's reliance on imports now stands at 72% and that isn't likely to change overnight. As a result, demand for the ships in the global dry bulk fleet can only increase. (For additional stock analysis, check out Long-Term Utility Dividends.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Eugene Bukoveczky
Contributor - Investopedia Advisor
Eugene Bukoveczky is a freelance writer for Investopedia.com. He holds a Chartered Financial Analyst (CFA) designation and has broad experience in investment research and portfolio management. He has traveled extensively during his career, working in Toronto, New York, London and Dubai. He graduated from York University School of Business with an MBA.
Eugene Bukoveczky is a freelance writer for Investopedia.com. He holds a Chartered Financial Analyst (CFA) designation and has broad experience in investment research and portfolio management. He has traveled extensively during his career, working in Toronto, New York, London and Dubai. He graduated from York University School of Business with an MBA.
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