Analysts Say Drybulk Not Slowing Down
Wednesday September 5, 2:02 pm ET
By Samantha Bomkamp, AP Business Writer
Analysts Say Drybulk Shipping Rates and Sector's Growth Not Slowing in Near-Term
NEW YORK (AP) -- There seem to be no near-term hurdles to slow soaring drybulk charter rates in the near-term, analysts covering the sector said at Wednesday's Dry Bulk Analyst Virtual Forum, organized by investor relations firm Capital Link and NASDAQ International.
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Bear Stearns analyst Scott Burk said the booming Chinese economy driving unprecedented demand for iron ore and coal, coupled with port congestion in Asia and Australia, have kept spot charter rates for drybulk vessels in recent months continually surpassing all-time highs.
And to a lesser extent, cement demand brought on by the construction boom and increased grain exports have also played a role in the historic demand levels for ships to transport the commodities.
The Chinese economy continues to be the most prominent factor in determining drybulk rates, Burk said, and if growth continues as expected, "we could see a 25-year bull market, with some cyclical downturns."
In the meantime, the analyst sees "continued consolidation" in the sector as public companies acquire private fleets.
A key index that covers drybulk shipping rates, the Baltic Dry Index, jumped 183 points Wednesday to close at an all-time high 8,090. The index has set an all-time high with every close since Aug. 27.
It measures rates on 40 shipping routes on a time charter and voyage basis, and is managed by the Baltic Exchange in London.
But with rates continuing to soar and shipbuilders struggling to keep up with the demand, it begs the question: when will the proverbial bubble burst?
Cantor Fitzgerald analyst Natasha Boyden expects the number of ships being built and put into service to finally begin to normalize demand levels at the start of 2010.
But until then, Lazard Capital Markets analyst Urs Dur said the sector should continue to experience rates across all drybulk ships at record-breaking levels, as port congestion continues to be a chronic problem and demand still outweighs the number of ships available.
Jefferies & Co. analyst Douglas Mavrinac called the current dry bulk market "unchartered territory," but suggested that when fleet growth "maxes out" or Chinese growth slows, the sector should begin a downturn.
Bear Stearns' Burk added that current credit woes could affect rates if they worsen and develop into a worldwide recession. But the most likely scenario, the analysts agreed, is the eventual slowing of demand through new ship building in 2010 or 2011.
In midday trading, shares of Diana Shipping Inc. rose 6 cents to $27.83, while DryShips Inc. rose $2.10, or 3 percent, to $72.58.
Eagle Bulk Shipping Inc. added 21 cents to $26.79, while Quintana Maritime fell 21 cents to $18.31.
Excel Maritime Carriers Inc. gained $1.68, or 3.8 percent, to $45.60, and Euroseas Ltd. added 29 cents, or 2 percent, to $14.59.
Genco Shipping & Trading Ltd. rose $2.75, or 4.8 percent, to $60.50, while TBS International Ltd. gained $1.19, or 3 percent, to $40.54. Navios Maritime Holdings Inc. rose 26 cents, or 2 percent, to $13.08.
