The Hindu Business Line : Firm freight rates buoy shipping stocks

A jump in shipping rates this quarter (dry and wet cargo rates) appears to be driving interest in the shipping stocks. The counters of SCI, GE Shipping and Mercator Lines have been ruling firm on the bourses.

Analysts maintain that one factor that has been driving stocks of shipping companies is the bullish trend that is sweeping the global freight market, especially for those in the tanker business.

Usually, freight markets peak during the winter, when a surge in winter demand for oil pushes up the tanker freight market.

"But even at this time of the year, ahead of the flare-up in winter, the freight rates are at an all time high," an analyst said.

"With world economy growing, demand for oil is growing from 80 million barrel to 83 million barrel a day. OPEC has said that it will pump in one million barrel more. Thus, with oil demand slated to increase, demand for ships will increase. During this period wet cargo rates are slated to increase substantially," a senior analyst with a reputed broking house said.

Going by the market fixtures reported by various brokers, the freight rate in the very large crude carrier (VLCC) segment hovered between $51,000 and $54,000 per day in August. The average rate in the VLCC market was $53,290 per day in the first quarter of the current fiscal, against $36,456 in the corresponding quarter last fiscal.

Considering the fact that the average rate soared from $26,472 per day in the second quarter last fiscal to $64,124 per day in the last quarter, industry analysts say a similar increase could be witnessed this time around, as winter demand for oil picks up.

Similar trends were noticed in the Suezmax sector - the spot rates for the Suezmax market touched an average of $ 39,069 per day in the first quarter of the current fiscal, against $ 31,834 in the corresponding quarter last fiscal.

The rates have been buoyant even in the dry bulk sector so far this year. For example, the Baltic Handymax Index (BHI) clocked an average of 25,473 points in the first quarter of the current fiscal, against 13,149 points in the corresponding quarter last fiscal.

"All these are indicative of the significantly higher earnings that shipping companies are notching up," said an analyst tracking the sector.

Industry sources maintain that for VLCC owners, such as Shipping Corporation of India, Great Eastern Shipping and Mercator Lines, the going will especially be good in the months ahead. For one, the present VLCC supply-demand balance is seen as extremely tight - in 2003 the VLCC fleet level in the world was about 120 million DWT, including 37 new deliveries, with utilisation level of 89 per cent.

The stock of Mercator Lines ended at Rs 368.95 on the BSE, while SCI ended at Rs 123.5, up 1.74 per cent with around 16.57 lakh shares traded on the NSE. Great Eastern Shipping ended at Rs 145.05 (BSE).

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