User 215177

How to Invest in Shipping and Whether You Should

Thank you for the useful article with excellent references including the Baltic. The BDI simply tracks spot demand for dry bulk ships and should therefore be interpreted with care.

The decline since its all time high in May 2008 is partly due to seasonal factors, exacerbated by the drop-off in Chinese iron ore imports (Olympics ), declining steel prices and possibly secular factors including the physical activity (versus fear of ) slowing global growth. This latter point is difficult to determine

My view is that the BDI will pick up once the Para Olympics finish and the Chinese run down historically high port iron ore stocks (due to stocking prior to Olympics and a contributor the all-time high in the BDI in May ) . The start up of Northern hemisphere grain shipments will also boost Panamex rates- analysts suggest this won't happen until October.

Ship supply remains tight for 2008 but will pick up significantly in the the second half of 2009 (irrespective of cancellations and delays). The Morgan Stanley supply comments have been largely discredited by industry experts.

Other key indicators include the FFA curve , which is in contango through 2009 and period time charter rates ( 1-10 years) . Although period charter activity has been predictably muted through August and September, contracts that were signed prior to the slowdown , and those deals that have been done over the summer are still at highly profitable levels for owners.

Unfortunately , drybulk stock prices are closely correlated with spot rates (BDI). Investors have ignored the fundamentals including time charter coverage (many owners fully covered in 08, up to 80% covered in 2009, and already with up to 50% in 2010; relative yields ; historical dividend performance , capacity to increase and sustain dividends ; growth profile; and ,quality of management. Exacerbated by the credit crisis and fears of global recession , the market has punished all stocks whether higher yielding plays (e.g. DSX, EGLE, GNK ) or lower yield with more exposure to the spot market (DRYS, TBS, EXM )

However, regardless of a softening in global economic growth, China and India will continue to invest in infrastructure ( only 15% Chinese GDP is export related). Seasonal factors (grain) and restocking (iron ore ahead of 2009 rate negotiations with iron ore producers as well as tight supply for the next 6-9 months suggest , all else being equal, an excellent buying opportunity in the near term