Wall Street Greek: Miral Shipping Report

Q4 Shipping Outlook

This latest work by Wall Street Greek's Shipping Analyst Alex Miral reviews the summer dry bulk shipping environment and offers Miral's expert insight into the fourth quarter outlook.

Mr. Alexander J. Miral, founder of Miral Shipping Company, is an independent shipbroker and consultant to commodity traders.

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Miral Shipping Report - Q4 2010 Outlook

Article authored for October 4

It has finally cooled down after a long, hot summer in New York and many places in the northern hemisphere. By contrast, many a dry bulk ship owner must have found the freight market to be chilly through most of the summer, though it regained some strength in September. During June and July, the Baltic Dry Index (BDI) declined for 35 consecutive days to 1720, with the capsize segment falling to near 12,000 per day time charter average before recovering. The panamax, supramax and handysize segments also fell, but not by nearly as much, to $17-19,000 time charter daily average before their own September recovery. As of October 1st, the BDI stood at 2452, and the Capesize, Panamax and Handymax timecharter averages stood at $32,626, $19,383, $19,272, respectively, representing a considerable rally for capesizes, but smaller overall increases for the other vessel classes.

Through most of the summer, Chinese Iron Ore imports fell as the cost of steel production increased to the point that domestic suppliers became more competitive, thereby reducing the demand for imported ore. The capesize sector has also been affected by the substantial amount of new vessels that have been hitting the market this year. However, the capesizes recovered after iron ore exports were banned from the Karnataka state in India. This led far-eastern demand to be satisfied from Brazil, which represented a large increase in ton miles.

The global grain trade, combined with coal and ore, has largely supported the other dry bulk sectors, allowing them to stabilize at higher levels. This past summer's hot and dry weather has greatly affected the grain crop in Russia, where 100 degree heat and fires ravaged the country in July and August. Russia then suspended exports until the end of next year. In addition, with damage to India's and possibly Australia's wheat crop, countries such as Egypt are importing the missing several million tons from farther away places like the U.S., which has had bumper crops, thereby also increasing ton miles. This greatly contributed to keeping rates higher for the Handysize through Panamax tonnage than they otherwise would have been.

The Outlook

What shall we expect in the coming months? The developed western world continues to see slow growth but much of the developing world has maintained high growth levels, which is forecast to continue for the foreseeable future. The first two weeks of this month should be slow due to holidays in Asia. Going forward, the main negative factor for freight is the continuing steady stream of new ship building that is forecast for the rest of this year and part of next year as well. On the bullish side, the price dynamics of the Chinese steel market are set to change, and renewed import growth of iron ore into China is expected to resume later in the 4th quarter of this year and into 2011. There have already been reports of steel production increasing again in China. Continued strong Chinese demand for iron ore and coal, steadily increasing Chinese coastal trade, plus growing Indian demand for coal is bullish for freight, provided that developing Asian economic growth continues.

Looking at the chart, the capesize market may attempt to test the latest peak just above $40,000 tc average. If it does not make it through, it will again test the $28,000 level. The panamax and handymax vessel markets are now close to testing the lows of mid-July. If they hold, there should be 20-30% upside thereafter. The longer term chart shows triangulation in the coming weeks, which points to the market going either way thereafter. After the Asian holidays, the bullish trends on the demand side for dry bulk freight look to re-assert themselves, but there are also substantial risks.

Editor's Note: This article should interest investors in Teekay Corp. (NYSE: TK), Navios Maritime Holdings (NYSE: NM), Navios Maritime Acquisition (NYSE: NNA), Navios Maritime Partners L.P. (NYSE: NMM), Tsakos Energy Navigation Ltd. (NYSE: TNP), Overseas Shipholding Group (NYSE: OSG), International Shipholding (NYSE: ISH), Excel Maritime Carriers (NYSE: EXM), Safe Bulkers (NYSE: SB), Claymore/Delta Global Shipping ETF (NYSE: SEA), Genco Shipping & Trading (NYSE: GNK), Diana Shipping (NYSE: DSX), Danaos (NYSE: DAC), Tsakos Energy Navigation (NYSE: TNP), Ship Finance Int'l (NYSE: SFL), Nordic American Tanker (NYSE: NAT), Seaspan (NYSE: SSW), General Maritime (NYSE: GMR), DHT Maritime (NYSE: DHT), Brunswick (NYSE: BC), Marine Products Corp. (NYSE: MPX), DryShips (Nasdaq: DRYS), Top Ships (Nasdaq: TOPS), Eagle Bulk Shipping (Nasdaq: EGLE), Sino-Global Shipping (Nasdaq: SINO), Paragon Shipping (Nasdaq: PRGN), K-SEA Transportation Partners (NYSE: KSP), Euroseas (Nasdaq: ESEA), Star Bulk Carriers (Nasdaq: SBLK), Omega Navigation (Nasdaq: ONAV), Knightsbridge Tankers Ltd. (Nasdaq: VLCCF), TBS Int'l (Nasdaq: TBSI), Golar LNG (Nasdaq: GLNG), Claymore/Delta Global Shipping (Nasdaq: XSEAX), American Commercial Lines (Nasdaq: ACLI), National Bank of Greece (NYSE: NBG), Hellenic Telecommunications (NYSE: OTE), Coca-Cola HBC (NYSE: CCH).

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