Shipping stocks stare at correction as benchmark swings down

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Baltic Dry Index declines by over 11%.

Our Bureau

Kolkata, Dec. 11

Shipping stocks are in a correction mode as the global spot rate benchmark, Baltic Dry Index, underwent a sharp downward swing.

This week the index declined by over 11 per cent. It recorded its year-high last month (on November 19) at 4,661 points. On Thursday it nosedived to 3,671.

The correction is prompted by ship oversupply situation. But industry insiders said the dry bulk rakes has improved to a great extent from the lows of 2008.

“The recent sharp increase was not backed by fundamentals,” said Mr S.S. Panigrahi of APJ Shipping.

According to Motilal Oswal, the dry cargo movement at major Indian ports suggests increase in volume in the recent months.

“For the month of November 2009, iron ore cargo grew by 16.4 per cent YoY to 9.2 million tonnes (vs 7.9 mt November, 2008), while container cargo grew by 15.2 per cent YoY to 8 mt. Coal cargo up 10.9 per cent YoY to 6.2 mt, while fertilisers cargo grew marginally by 4.8 per cent YoY. POL was the only category of cargo which reported a YoY decline of 2.7 per cent, while other cargo grew by 40 per cent YoY to 8.2 m tonnes.”

Mr Kapil Yadav, shipping analyst with Dolat Capital, said unlike dry bulk rates, the tanker rates have been less volatile through the year. “While last daily dry bulk rates fell 3.17 per cent, the last change in VLCC tanker rates showed improvement of less than 2 per cent.”

Analysts said the Chinese iron ore imports have been helping the local dry bulk carriers, while the winter demands for crude oil in the western hemisphere has been keeping the rates steady for the tankers.

The top two Indian shipping companies – Shipping Corporation of India and Great Eastern Shipping – have a mixture of dry cargo and tanker fleet.

Mercator Lines, on the other hand, has predominantly dry bulk lines. But the exposure to spot rates varies.

The long-term charters, contracted for before emergence of global recession, have benefited some of the Indian shipping companies.

In recent times the exposure to spot rates – whether dry bulk or tanker – has gone up or is poised to go up as old charters expire.

“On balance, there have been improvement in earnings for the Indian shipping companies but margins have been thin. There may be further correction in the dry bulk rate. But tanker rates are likely to remain steady in the coming winter months,” said Mr Yadav.

(This article was published in the Business Line print edition dated December 12, 2009)
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