outlook on shipping stocks for short term

#1
guys shipping stocks are the one that have been quoting at extremely low p/e levels due to soft freight rates for 1 year bur here i would refer to the following news item which is quite convincing and my estimate is that shipping freight rates will rise by 10-15% in short term:


FOCUS: Freight Markets Eye Iron Ore Price Settlement
By Glenys Sim

Of DOW JONES NEWSWIRES



SINGAPORE (Dow Jones)--The global freight market has been drifting in recent weeks but prices could firm up again once China and its major iron ore suppliers reach agreement over 2006-07 term contracts, traders and analysts said this week.

Dry-bulk ocean freight rates rose last month due to heavy Asian buying in anticipation of a hike in iron ore prices. But the uptrend was reversed in recent weeks after China failed to reach agreement with suppliers on prices despite three rounds of talks.

The fourth round of talks are expected to start next week.

China delaying iron ore shipments ahead of a price settlement also led to softer rates, said a Tokyo-based trader at a large Japanese trading firm.

But freight rates are expected to rise once China starts shipping ore again.

While there is no doubt iron ore demand from China is still very strong, market participants agree the increasing availability of ships will likely limit the scope for any sharp rise in freight rates, even after 2006-07 iron ore prices are decided.

"Once there is movement again, freight in the panamax market could probably go up to around $40, but definitely we won't see the December 2004 highs of $60-$70/ton again soon," said Unipac Grain trader Nobuyuki Chino.

Citigroup's global commodity analyst Alan Heap tips global bulk shipping fleet to expand by 5% in 2006, and expects freight rates to eventually fall "as more ships are commissioned and port bottlenecks begin clearing".

Rates Weighed Down By Delayed Iron Ore Talks

The Baltic Dry Index, a barometer of the cost of moving dry-bulk cargoes around the world, lost 202 points last week to end at 2,502 Friday.

Although this is up from a low of 1,750 in July, it is a long way away from the record high of nearly 6,200 in December 2004.

The Baltic Capesize Index also lost 602 points last week to end at a 30-month low of 3,313 Friday.

Capesize vessels typically carry over 150,000 tons of cargo, mainly iron ore and coal.

Nearly half of all seabourne dry-bulk commodities trade are linked to steel production, making the capesize sector a key driver of the dry freight market.

Weakness in the capesize market has also dragged the panamax market lower.

The Baltic Panamax Index, which tracks freight for Panamax-sized cargoes of around 55,000-80,000 tons of usually grains or metals, fell 65 points last week to end at 2,460 Friday.

But traders and analysts said the fall in panamax rates was limited by the shipment of new crop of South American grains to Asia.

In the spot market, a panamax-sized cargo is offered around $34 a metric ton on the benchmark route from the U.S. Gulf to Japan, unchanged from the previous week's levels.

Iron Ore Negotiations May Be Nearing An End

Meanwhile China's Shanghai Baosteel Group Corp.(600019.SH), representing the country's steel makers, is still in negotiations with major iron ore suppliers.

Baosteel will hold the fourth round of talks next week with Brazil's Companhia Vale do Rio Doc (RIO) as well as Australia's Rio Tinto Group (RIO.AU) and BHP Billiton Ltd. (BHP), China's state-run Xinhua news agency reported.

The three miners together account for about 70% of the global exports of iron ore.

Earlier rounds of talks ended in deadlock as Chinese steel makers sought a cut in prices after last year's 71.5% increase, but ore producers were seeking a further increase this year.

After an about turn in the hardline stance against increases in 2006-07 iron ore prices, Chinese state media this week said the government wouldn't "intervene" in negotiations and would leave Baosteel to haggle over prices independently.

Just last week, the Ministry of Commerce and National Development and Reform Commission had issued a joint statement warning China's steel industry won't be able to shoulder another increase in prices. The statement asked governments of iron ore exporting countries to "pay high attention" to monopolies in iron ore trade.

But the latest turn of events made many market observers conclude that the long-drawn battle may be over soon, with China finally accepting another price hike.

Analysts expect 2006-07 iron ore prices to increase by some 10%-20% over 2005-06 prices. The one-year contract is due for renewal April 1.
 
#2
in short the china producers are negotiating with iron ore suppliers as soon as the shipments will begin following negotiations of contract freight rates would rise which may result in rerating of shipping stocks.we saw wat happened with steel and tea stocks.
my top picks in this sector are:
1.mercator lines
2.varun shipping
3.shreyas shipping
 
#5
look if the above analysis proves to be correct and freight rates go up then the stocks will be rerated and they shud atleast reach their previous highs.so this is more a contrarian call.
 

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