Market Realist dry bulk shipping blast (Part 1: Recap and preface)

Pull-back followed by unexpected increase

Last week (July 29 to August 2), we saw a slight pull-back in dry bulk shipping stocks along with some weakness in the Baltic Dry Bulk Index, which tracks the price of shipping dry bulk raw materials across the ocean. The expectation of a lower Chinese manufacturing PMI figure for July likely put investors and traders on the cautious side early in the week, like the poor preliminary manufacturing PMI figures released by HSBC the week before.

Dry Bulk Shipping Stock Performance 2013-08-04Enlarge Graph

But dry bulk companies gained some ground after China’s official manufacturing PMI numbers showed an unexpected increase, while HSBC’s final figure (which captures a larger sample of smaller firms compared to the state’s official index) continued to decline to an 11-month low, confusing many analysts and strategists.

Key indicators to watch for

This week, Eagle Bulk Shipping Inc. (EGLE) and DryShips Inc. (DRYS) will be releasing their second-quarter earnings after the market closes on August 7, 2013. On Friday, China will be releasing a slew of economic data, including the country’s inflation rate (consumer and producer price index), industrial output, real estate business activity, and investments in fixed assets. All of these will give us a better clue of how the fundamentals of the dry bulk shipping companies will look for the remainder of 2013.

But first, let’s review key industry indicators, published by IHS Global Limited, that reflect the supply and demand dynamics of the dry bulk shipping industry. With few factors other than price to differentiate themselves from each other, supply and demand are key factors that affect shipping rates, which in turn affects earnings and share prices of these stocks. Last week’s new data showed some more encouraging signs that point towards a recovery in the dry bulk shipping industry.

Learn more about key indicators that reflect the dry bulk industry’s fundamentals

Continue to Part 2: Ship Orders