Why the outlook for dry bulk shipping stocks is generally positive
Higher rates are expected
As reported in a recent news release, Scorpio Bulkers chartered out a Panamax for five to seven months at $15,900 a day, another Panamax for 12 to 13 months at $16,000 a day, a post-Panamax ship for eight to ten months at $13,250 a day, and two Kamsarmax vessels for 12 to 14 months and 10 to 12 months, respectively, at $15,000 a day and $14,500 a day.
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How long can this rebound last?
Despite the recent falling Baltic Dry Index, there are many indicators suggesting that both shippers and charterers are anticipating a strong rebound this year. Demand will center on major commodities. China’s urbanization will continue to create demand for steel and coal, the upcoming grain season may have a positive impact on shipping rates for Q2, and iron ore exports from Brazil and Australia will increase as well. Dry bulk rates are expected to bounce back in February and March as chartering activity rises.
Analysts from Barclays and Jefferies forecast that the Baltic Dry Index will average between 1,400 and 1,600 points this year, compared with 1,060 last year. As of February 14, 2014, this index is 1,106 points. The global dry bulk seaborne trade is forecast to grow 5.8% in 2014, to 4.37 billion deadweight tonnage, according to Barclays Research, outpacing a 5.3% rise in the global dry bulk fleet, to 753 million deadweight tonnage.
BIMCO’s chief shipping analyst, Peter Sand, noted that the seasonal slowdown in Q1 2014 is a bit worse than expected, but there’s still a solid outlook for a rebound in demand for the remaining three quarters in 2014. Some ship owners estimated that the upcycle will continue until the early or middle part of 2016. After that, overcapacity might again dampen shipping rates.
To learn more about investing in this industry, see the Market Realist series Must-know overview: Investing in dry bulk shipping.