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CS: "Here comes the sun" for shipping industry

  • The 2004-2008 dry bulk super-cycle isn't coming back, says Credit Suisse, but good money can and will be made in dry bulk shipping. The BDI peaked at 11,793 in May 2008, 10x above today's level. Asset prices have come down alongside though, with newbuild ships off 50% and 2nd-hand 75%, meaning charter rates don't need to be nearly as high for a new owner to bank coin.
  • Iron ore volumes are key and there's plenty of iron ore supply coming online, but what about demand (China)? While the team has doubts Chinese demand can grow fast enough, it does note the country's mines produced 353 metric tons of ore last year - China's a high cost producer though and these mines will be the first to shut down on low ore prices. This means higher imports and greater shipping volumes - a difference-maker going forward.
  • Diana Shipping (DSX) is upped to a Hold with price target bumped to $10 from $8. Safe Bulkers (SB) is maintained a Buy with price target increased to $7 from $5. Genco Shipping (GNK) is maintained a Sell thanks to its high level of debt.
  • Related ETF: The Guggenheim Shipping ETF (SEA).
Comments (1)
  • Editor The Lewis Letter
    Safe Bulkers is in my model portfolio. I noted recent volume and price activity has been most encouraging. SB is the best managed dry bulk shipper of its peers, paying dividends out of earnings not debt. CEO has skin in the game owning a major stake in the common and bought half of a recently issued (very attractive) 8% preferred.
    20 Aug 2013, 09:43 AM Reply Like
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