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Baltic Capesize Index Surges: A Step Towards Industrial Recovery?

I am going to disagree a bit with our friend coprophagous. The writter of the article is correct when he states that companies like Genco have their fleets out and working - over 95% are signed up for at least the next 6 months if I am not correct and well over half of Genco's fleet is signed up for the next 18 months. As for the new ships he states that are coming on line - I question that number as well. Brownfield shipbuiding yards are just not being built because they could not get financinig so those orders are canceled. On top of that, ship companies who have signed contracts for ships are canceling those contracts because they cannot get credit or they just see this as the wrong time to be buying new product, so that takes another chunk of new ships out of the equasion. The ships that are left, outside of Genco, Diana, Eagle, Dryships - the big players who have mostly young fleets, are old and are not as efficent to operate. They would start scrapping these old ships but again - no credit to buy them on the part of the scrapyards and the price of scap right now is low because of low demand for steel.
The BDI just could not go much lower. We know the Chinese were playing games last year after the Olympics - in my view they were sticking it to Vale for attempting to raise ore prices by a further 10% in the middle of the already agreed upon contract that already had signifigant price increases. I read an artilce a few weeks ago that Vale had recinded the price increase and they were agreeing to ship the ore to China at their cost. The Chinese will not be played for chumps again and they are showing that they will pay reasonable amounts for ore - and if not, they are not adverse to shutting things down until costs fall back in line. Last fall was a cannon shot across the bow for the ore manufacturers to let them know who is in charge and to not be so damn greedy and that maybe why the ore provider in Australia that coprophagous mentions in his article went bust - caught up in China's power play. Thats my take anyway.
In the end - the Chinese have pledged 500 Billion dollars in economic stimulation NOW and for them that does not mean fooling around with the Central Bank - that means infastructure and jobs. They have to keep their GDP growth above 6% or they end up with civil unrest. Keep the people working and things are at peace. They are building thousands of new mies of railway, they still have to rebuild the area devastated by the earthquake last year - thats hundreds of appartment buildings, schools, hospitals, factories, homes, bridges etc. On top of that, they have committed to build 102 new cities - cities that do not exist now, each city to house over 1 million people, over the next 20 years.
Where are they going to get the ore, the copper, the concrete, the coal etc. to build these cities. Oh ya - by importing the raw materials on Dry Bulk Ships.
The index is moving up and the fact that the ore miners and China have decided to do this years contract 4 months ahead of time shows that things are ready to ramp up slowly.
Will the Drybulk index hit the highs of last May - I personally do not think so - but they will go up. I will be happy if they get to 50% of where they were last May. Many feel the bottom has been hit on the BDI. We shall see.
And finally - those 300 ships sitting in harbour - they are, I am willing to bet, spot charters and they are old ships that under normal economic circumstances, would be headed to the scrapyards anyway. They are too expensive to run and maintain at the present rates. Lets remember - the big players, Genco, Diana, Eagle and Dryships are not spot charter players - they hold long term contracts with the creme de la creme of the charterers, and they will all do well as the Chinese and India in the case of Eagle, start to ramp up production for domestic use. Thanks for reading and a Merry Christmas and Happy New Year to all.

Staying Afloat: A Primer on the Shipping Industry

I agree with the individuals who commented that Diana (DSX) has suspended its dividend - this was announced over 4 weeks ago - so it should be old news by now. The fact that the author of this article did not pick up on that I find remarkable. The reason DSX suspended their dividend was because they wanted to save cash in case an aquisition opportunity became available. Admirable - but a huge hit to their shareholders.
The other thing the author needs to familiarize himself with is that the companies that are going broke are not the GSK's, DSX, EGLE or for that matter DRYS, because they all have long term charter deals signed for the next year at least, for the vast majority of their vessels and these contracts were signed a year ago - AND they all report none of their customers have asked to re-open those contracts, so they do have a steady income stream. The shipers that are going out of business are the spot traders - they companies who charter their ships for one voyage at a time. When the BDI ( Baltic Drybulk Index ) was high, these guys were making out like bandits while the DSX's , EGLE's and GNK"s of the world were getting nailed for chartering their ships longterm at much lower rates. In the end - who was the wiser ??? That is when DRYS switched over from a spot trader to a company whom relies on long term contracts.
In case you missed it - the Chinese and the ore producers just today annonced that they will begin the 2009 negoitiations for the iron ore contracts early this year (January instead of April). The ore producers have been slammed by the Chinese virtually shutting down steel production. Vale's attempt to introduce a 10% price increase in the miiddle of the 2008 contract backfired badly on them and the rumors were that they were offering to ship ore to China for free and without the 10% increase to get production going again. The Chinese were smart. They just stopped buying ore and then the economic crisis hit the rest of the world All they did was sit and wait and watch the price of shipping goods and the raw materials themselves fall because the Chinese ARE THE MARKET. If they buy to much, prices rise, if the don't buy at all, prices fall. They have come to terms with that and they will act accordingly - as will the ore miners and shipowners. It was feast time for awhile, but the famine has been long and hard.
On the news of the possibilty of early ore negotiations, the Drybulk shipers stock all went up today by about 15% - 20% in most cases. Whether China exports toys to the USA or anywhere else has zero to do with Drybulk rates. China's steel will be for internal consumption only as part of the $ 500 billion dollar stimulus package they announced a month ago. They need to rebuild the Provence damaged by the devastating earthquake a year ago, and they have announced thousands of miles of new railway construction. As well - they have annouced that they will be building, over the next 20 years, over 100 new cities - cities that today do not exist, each city with a population of over 1 miilion people. To do that, they will need steel and concrete - the 2 main staples carried by Drybulk shippers.
I now own GNK and I have for a year now. I have taken a bath on it with the market decline, but lets also remember that this sector was hammered by short selling all summer. I have also owned and highly recommend EGLE ( the author is correct about them - they concentrate on smaller ships and they ply the India trade - moving goods form one side of India to the other as India does not have the railroad capacity to do this work). I also like and have owned DSX as well, but why hold them if you do not get dividend payments. I research Drybulk every day - and I would never consider selling because - my dividend yield right now is huge ( and yes they will cut that dividend if the stock price does not improve - but it will still be an attractive dividend even then), and this market will take off. It has zero to do with the USA and the global economy. The Chinese economy is expected to grow by 7 % next year - they have to - if not they have civil unrest, so the government is forced to keep the population working. They will need steel and cement - and that means they will need Drybulk ships. Because many of the new ships that were suposed to enter the sysyem in '09 and '10 have not been constructed, their will still be a shortage of ships and rates will rise again. When they do - the stock prices will rise as fast as they fell. They may not hit the highs of last May, but they will certainly rise. I am ready for the ride. I hope this helps many of you and I am not trying to sell a subscription to anything.

Dryshippers: A Buy or a Sell?

This article hits the nail on the head. The problem with Bulk Shipping stocks is that there are too many speculators and people who have not done their homework buying and selling these stocks as well as short sellers playing games with DRYS and GNK. They look at the Baltic Index as if it were a messiah, not understanding that the big shiping stocks do not play the spot market any longer because of the volatility. They are signing long term charters and locking in nice rates for several years. They are even chartering ships before they are finished building them. I heard on an earnigs call that it costs a Dry Bulk ship owner about $ 7000.00 a day to run a ship. Thats it - they do not even pay for fuel - the charterer does that, and they lease them out at the prices mentioned in the article, so even at $ 80,000.00 a day - the low end of the scale, look at the profit they are making. Another stat mentioned in an quarterly report from one of the companies was that over the next 20 years China will be building 102 brand new cities that do not even exist today and each will have a population of 1 million people. Think about that - and all of that concrete, steel and other comodoties will have to be brought in by ship. What does that say about the long term of this market.
I own 300 shares of GNK, 1000 shares of Eagle and 1000 shares of Diana. I am down in 2 of the 3 ( Eagle and Genco ), but I have no plans on selling. They are planning to raise dividends so why would I. Hang in there and lets hope that the speculators and uneducated get scarred away by this downturn and leave it to those of us who actually understand this market and can see its potential. Buy more people - this is a sale.