Good News For Dry Bulk Shipping
Yesterday, Rio Tinto (RTP) announced that it signed a new iron ore supply deal for an 85% overall year over year price increase with Chinese Baosteel Group Corp. These prices will take effect retroactively to April 1, 2008. Companhia Vale do Rio Doce (RIO) had previously concluded its negotiations at a 71% premium to last year's prices. BHP is expected to quickly conclude negotiations at a comparable level to RTP.
This is all good news for dry bulk shipping. The spot prices for iron ore are more than double the agreed upon price. The Chinese steel producers had effectively stopped importing iron ore temporarily. They were using up their current stocks. I understand these were only enough to last another 2-3 weeks. This had led to a fall in dry bulk rates, since the Chinese were effectively not importing iron ore. With the settlement of this contract, the flow of iron ore to China will ramp up again quickly, even more so if BHP concludes its negotiations soon (as is expected). It means that there will be a lot more dry bulk shipping to China. It means that shippers such as DRYS, which contract mostly short term, will be much closer to 100% busy.
It means that there is considerable headroom for higher dry bulk rates than last year. Look for the dry bulk shippers to move up quickly on this news. Their ships will no longer be idled by this negotiations impass. Some of companies that should benefit are DryShips (DRYS), Excel Maritime (EXM), TBS International (TBSI), Navios Maritime (NM), Star Bulk Carriers (SBLK), etc. Companies such as Diana Shipping (DSX), which have longer term contracts, should benefit less.
Now if the markets start to recover too, dry bulk shipping will really take off. Many PE's are currently below 6. For example, NM's PE is currently 3.7. DRYS's PE is approximately 4.8. This is also good news for RTP and BHP Billiton (BHP). They should move up on this news.
Disclosure: none
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This article has 32 comments:
- hannah007
- 3 Comments
Jun 24 07:01 AM- Carl Martin
- 44 Comments
Jun 24 08:25 AM- dryboss
- 1 Comment
Jun 24 08:41 AM- billf921
- 9 Comments
Jun 24 10:12 AMsecondly, the ceo has no problem issuing himself one million shares worth 75 m.
third, the ceo private company took long term charters at th public share holders expense
I cant get over his self serving moves and cashed out a million dollar position.
- David White
- 438 Comments
Jun 24 10:14 AM- David White
- 438 Comments
Jun 24 10:25 AM- billf921
- 9 Comments
Jun 24 10:31 AMyou don't want to be in any bulker stock if and when that occurs
- David White
- 438 Comments
Jun 24 10:32 AM- David White
- 438 Comments
Jun 24 10:37 AM- David White
- 438 Comments
Jun 24 10:40 AM- drys long
- 10 Comments
Jun 24 11:13 AM- David White
- 438 Comments
Jun 24 11:15 AM- David White
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Jun 24 11:23 AM- David White
- 438 Comments
Jun 24 11:33 AM- David White
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Jun 24 11:51 AM- David White
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Jun 24 12:19 PM- David White
- 438 Comments
Jun 24 12:55 PM- retrobeast
- 14 Comments
Jun 24 01:16 PM- David White
- 438 Comments
Jun 24 01:27 PMAll of these stocks seem to be good values plays, although some are better than others. I have listed the P/E, P/S, P/B, and P/CF values for the stocks below (from TD Ameritrade):
NM: 3.74, 1.0, 1.28, 3.2
DRYS: 4.82, 4.49, 2.07, 4.89
TBSI: 7.89, 2.43, 2.79, 5.93
EXM: 6.8, 7.73, 1.74, 11.38
SBLK: 26.76, 12.78, 1.37, NA
I note the FPE of SBLK is 5.94.
Obviously the ones with healthy cash flow are probably the best risks in a volatile market.
- David White
- 438 Comments
Jun 24 01:44 PM- David White
- 438 Comments
Jun 24 01:45 PM- Ramani Exchange
- 1 Comment
Jun 24 02:58 PM- TH Williams
- 1 Comment
My Website
Jun 24 03:26 PMNigerian oil production is not effectively shut down. While militants have made a significant dent in production the country continues to produce 1.5m b/d of oil.
China is not short of coal but estimated to be down to a 2 to 3-week supply. There is a difference. Demand is currently down due to internal reasons. Several coal consuming facilities (steel/energy) may be slowed down for the Olympic Games.
China agreed to a 96% increase in iron ore prices late yesterday. That is helping to boost the outlook for the dry bulk shippers today.
- David White
- 438 Comments
Jun 24 03:54 PM- David White
- 438 Comments
Jun 24 04:14 PMI have been getting conflicting information about whether BHP has agreed on anything with China though. Such a statement may have been premature.
- David White
- 438 Comments
Jun 24 04:44 PMI know they now have (and are building more) plants which convert coal to diesel in China. Also I am sure the steel industry will be going full blast after the Olympics. They too may have been ordered to decrease their pollution for a short time. I am not really sure, but it does make sense. I will keep this factor in mind for future trades. I definitely have heard that the government has ordered certain businesses to decrease their pollution to proscribed levels during the Olympics.
- iMac
- 1 Comment
Jun 24 04:45 PM- David White
- 438 Comments
Jun 25 10:18 AM- David White
- 438 Comments
Jun 25 10:27 AM- David White
- 438 Comments
Jun 26 11:19 AM- David White
- 438 Comments
Jun 26 11:21 AM- SAMK
- 2 Comments
Jun 29 02:34 AMMore by David White