Baltic bounce
Baltic bounce
A sustainable dry-bulk market rebound is becoming more likely as international steel mills join China in upping their activity in the freight markets, Dahlman Rose says.
In response it has upped its rate estimates for the second half of 2009 and into 2010 and suggests asset prices are due a big shot in the arm.
In the bank's latest dry-bulk update, analysts Omar Nokta and Sam Margolin say steel producers in the US, Europe and Asia have raised prices and guided higher production due to increased demand during the past two weeks.
They said: “Last month we argued that dry-bulk carries substantial optionality on an improving worldwide steel market and we are seeing the beginnings of such a rebound.
“ArcelorMittal, Nippon, US Steel, Nucor, Severstal, AK Steel and others have announced price and production increases this month.”
More spot coal activity into China and now Japan is also a positive development, the analysts note.
With capesize rates now above $50,000 daily Nokta and Margolin believe the panamax and supramax markets are likely to piggyback on that success.
They said: “The longer the capesize market stays at such high levels, the higher the pull on the mid-size vessel classes and we look for panamax and supramax rates to push towards $30,000 per day in the coming weeks.”
Nokta and Margolin now forecast capesize rates for the third and fourth quarters of $50,000 daily, up from the $35,000 and $40,000 previously expected.
For next year, the analysts are tipping rates of $45,000 daily, up $5,000 per day from their previous guidance.
Improving freight markets have lifted ship prices by around 11% over the past month and the pair expect further climbs in the coming weeks.
“The Baltic Exchange currently assesses five-year-old capesizes at $54m but current six-month and 12-month time charter rates in excess of $50,000 per day suggest values closer to $75 million,” Nokta and Margolin said.
“While most stocks have limited exposure to improving freight rates in the near-term, we believe increasing asset values will put [listed owners] in stronger standing with their creditors and enhance their loan-to-value position.
“We expect that will lead to increased control over cash flows and allow for further dividends and reinvestment.”
Following the update, Nokta and Margolin have upgraded Navios Maritime from “hold” to “buy".
They are also sticking by their buy ratings in Diana, Eagle Bulk, Genco, Paragon and Safe Bulkers.
By Andy Pierce in London
AI
