Xun is an analyst based out of Market Realist's New York City office and was formerly an investment analyst for four years. Previously Xun worked at Puji Capital, a hybrid investment bank and private equity firm based in Shanghai. He was also formerly a business consultant for Mic.co in his native Japan. Xun graduated summa cum laude from Boston University, with dual degrees in Economics and Business Administration.
Disclosure: I am in full compliance with all ethics and other policies for Market Realist research analysts. I am not invested in securities that I cover on Market Realist.
China’s crude oil import: The most important factor An indicator that has a first-degree (direct) influence on tanker rates is China’s crude oil import volume. When import volume rises, more tankers will be in use, which pushes up shipping rates. Conversely, lower import volume means an increased number of idled ships, which leads to increased […]
Historic shipping cycles might suggest limited upsides for dry bulk shipping companies such as DryShips Inc. (DRYS), Navios Maritime Holdings Inc. (NM), Safe Bulkers Inc. (SB), and Diana Shipping Inc. (DSX) over the medium-to-long term.
Given how uncertainly demand can move, it would be a miracle if ship buyers as a whole could correctly anticipate the number of ships required to haul growth in the dry bulk trade.
With Indonesia having no intention of reversing its policy and few alternatives, year-over-year growth will likely continue to fall until the end of 2014.
There are several things Frontline can do to pay its maturing $190 million bonds. But activities such as selling assets or raising additional capital would likely put Frontline behind its peers.
So would Frontline be able to come up with $190 million to pay off its debt that matures in 2015? As of March 31, 2014, Frontline Ltd. (FRO) had ~$111 million in cash and cash equivalents.
The restructuring gave Frontline time to ride through the industry’s weakness that also negatively affected Teekay Tanker Ltd. (TNK), Navios Maritime Acquisition Corp. (NNA), and the Guggenheim Shipping ETF (SEA).
While rates in 2014 are expected to average above 2013, and Frontline could still perform well from here, its performance could lag. It’s also a riskier investment than its peers.
The first few months of 2014 brought optimism to the crude tanker industry, allowing Frontline’s VLCCs and Suezmax vessels to earn an average of $32,700 and $27,700.
Frontline Ltd. (FRO) stock fell another 16% on the day the company announced its first quarter earnings for 2014 on May 27, 2014, even though earnings matched analysts’ consensus.
Politics can also play a major role in shaping natural gas trade and LNG (liquefied natural gas) shipments, which in turn affect Golar LNG Ltd. (GLNG) and other stocks.
Whether more proposals will get approval and more liquefaction capacity will come online will depend on the economic feasibility of the liquefaction plants.
The LNG (liquefied natural gas) trade has much room to grow. GasLog Ltd. (GLOG), for example, has compared LNG shipping industry to the crude tankers that hauled unrefined oil in the 1950s.
While there are a few different types of LNG vessels, the two dominant containment systems, Moss (nicknamed “dinosaur egg”) and Membrane systems are employed today.
Global energy demand will continue to increase, driven by population growth and improved standards of living. At the same time, emphasis on sustainability becomes more critical.
If there’s one factor that we might have missed before, it’s Europe. As the United States continues to produce more crude oil, some of this oil has to go somewhere.
Since power generation industry adjusts fuel preferences based on what it pays, investors must factor in the transportation costs to deliver natural gas and coal from major suppliers to buyers.
It’s common practice for coal producers and buyers to enter fixed price and volume long-term supply contracts that last more than a year to ensure stability and predictability.
Underground mining is more expensive because it’s more capital intensive. Coal companies have to drill more, and use more expensive and complicated machines.
While North America’s share of coal production made up just 12.75% of world supply in 2012, it has one of the largest shares of the world’s proved reserves.
If the consensus estimates for the next four quarters increase, and the market’s expectation converges with the consensus, Nordic is now trading at a value territory.
According to Nordic American Tanker Ltd.’s (NAT) prospectus, the company will acquire two to four vessels from net proceeds on 10,000,000 share issuance, which is now raised to 12,000,000 shares.
In 2014, urea prices in China will likely remain as a key driver of nitrogen fertilizer companies’ performance, which in turn would also affect the VanEck Vectors Agribusiness ETF.
According to Nordic American Tanker Ltd. (NAT), the company will use the net proceeds from the follow-on offering to primarily finance the acquisition of two to four vessels.
On April 8, 2014, Nordic American Tanker Ltd. (NAT) dropped ~10% from the prior day to ~$8.50 a share. The company announced on Monday April 7, 2014, that it would offer a follow-on offering.
As the United States is the largest oil consumer, U.S. oil consumption patterns will continue to sway the Guggenheim Shipping ETF (SEA) and tanker companies’ outlooks.
Higher secondhand vessel values While newbuild prices for Panamax vessels were weak (or neutral depending on how you see it), vessel values for 10 year old Panamax and Capesize continued its upward trend in March. Panamax vessel value rose 2.27% in March, increasing from $22 million in Feburary to $22.5 million in March. Capesize vessels […]
Baltic Dry Index Since rising from mid-February 2014, the BDI (Baltic Dry Index) has come back down again. The BDI is a benchmark index used to assess the overall cost of moving dry bulks such as grain, iron ore, grain, nickel ore, and fertilizers across ocean in the spot market. In the spot market, ships […]
Industry experts often show ex-China global urea capacity utilization because China’s export tax makes domestic producers’ urea more expensive for international buyers.
We’ve learned through previous research that week-to-week movements in the Baltic Dry Index don’t really have a strong relationship with week-to-week movements in dry bulk shipping stocks.
As a key component of potash producers’ revenue, fertilizer prices often receive wide attention from industry experts, company managers, investors, and analysts.
Since oil is used to run automobiles, auto sales growth affects crude oil demand growth. This, in turn, affects demand for oil tankers used to transport oil across the water.
Outside of Brazil, the United States, and China, there are three key countries and two major crops that are important to potash: Indonesia, Malaysia, and India.
If investors had the insight to see that mandates to blend more ethanol into gasoline would drive demand and prices for corn, fertilizer stocks would have been a good bet.
After a record harvest in 2013, driven by high plantation acreage, favorable weather, and fertilizer application, crop prices have pulled back from the highs of 2012.
Shares have climbed a bit since February 20, 2014, after Teekay Tankers beat estimates and several Wall Street analysts had upgraded most crude tanker stocks.
Companies forfeit the opportunity to benefit from lower natural gas prices when they hedge. But hedging activity protects companies’ earnings when natural gas prices rise.
Lower nitrogen fertilizer prices were the key driver behind lower share prices of companies such as Terra Nitrogen Company LP (TNH) and CVR Partners LP (UAN).
Nitrogen is an important nutrient for crop development and growth. It’s also the most important input that allows farmers to feed billions of people in the world.
Perhaps as a sign of confidence that dry bulk shipping companies will do well, Soros Management increased its position in the industry during the fourth quarter of 2013.
According to Diana’s earnings call, Clarksons predicts that 2014 world seaborne imports of coking coal and thermal coal will increase by 5% and 4%, respectively.
So unless we see crop prices start to run, we shouldn’t expect a strong recovery or rally among potash stocks and the VanEck Vectors Agriculture ETF (MOO).
On January 20, 2014, Uralkali entered a contract to sell 700,000 metric tonnes of potash to China—widely viewed as the benchmark for international prices—at a price of $305 a tonne.
It’s not just about the iron ore, according to Navios Maritime Partners LP (NMM). Coal and grain will also be important drivers of demand for dry bulk ships.
The sharp rise in the Baltic Dry Index that many analysts saw first in late August and second in November was in part driven by restocking activity of iron ore at Chinese ports.
As store count grew over the past few years, Starbucks’ forward P/E valuation metric also expanded. What used to be just 17x gradually grew to roughly 27x, a 58% based solely on expansion in the valuations.
Perhaps one explanation for Starbucks Corp.’s (SBUX) lower store count growth is the company’s sheer size. This means the number of stores that Starbucks could open going forward could be limited.
The Baltic Dry Index (a benchmark that reflects the overall shipping rate for transporting dry bulks such as iron ore, coal, and grain across the ocean) has fallen quite a bit since the start of the year.
As a primary coffee retailer, food has been a relatively minor part of Starbucks Corp.’s (SBUX) focus in the past. But lately, Starbucks has been expanding its product offerings for food.
Noble’s large backlog for 2014 certainly shields Noble from some industry weakness. But investors should consider that backlogs are common throughout the offshore drilling industry.
CVR Partners employs a gasification process licensed from an affiliate of General Electric to produce nitrogen fertilizers, which uses pet coke as a primary input.
As long as players coordinate with each other, suppliers can adjust production and set prices at levels that will earn them the highest economic profit.
Because vessel supply is inelastic, rates can shoot up given a small change in demand. This is shown as the sharp rise in the year-over-year change in the BDI in late 2013.
Because the month-to-month data can contain short-term statistical noise that doesn’t reflect long-term fundamental changes, a six-month change or year-over-year change is often used.
Since properties make up 42% of China’s steel consumption, as estimated by Morgan Stanley, knowing how China’s real estate market is performing is key to demand for steel.
The dry bulk shipping industry is cyclical mainly due to economic or business cycles as well as a long lead time between the placement of orders and the delivery of new vessels.
Dry bulk shippers, including those within the Guggenheim Shipping ETF (SEA), generally generate revenue via two contract types: spot (voyage) and time (period) charters.
Commodity prices are often said to have a strong correlation with economic activity: when economic activity picks up, higher demand will push prices up
Iron ore represents about 30% of total dry bulk shipments. It’s one of the main two ingredients (the other being coking coal) used to produce pig iron.
If there’s one thing we know for sure, it’s that a sustained underpricing of WTI to Brent would likely point to lower oil imports over the next decade.
As a result of labor layoffs and cuts in operating capacity, Potash Corp. (POT) estimates that global potash operating rate would increase to near 90%, rather than to ~85% in 2014.
With the exception of Red Lobster, the company noted that it has been successful at increasing relevance to these more financially secure and younger consumers.
Olive Garden is also rethinking its core menu, which is an important step to take because customers have been fleeing the restaurant in favor of alternatives.
Even compared to a smaller craft beer company, Craft Brew Alliance Inc., Boston Beer Company has thrown out an impressive 20.6% over the last 12 months.
