Tuesday, October 14, 2008

Baltic Dry Plunges Below 2000!!!

There is simply no respite for the dry bulk shipping index.

Yesterday the dry bulk index plunged a whopping 11% or 245 points to close at 1976!!

However, despite this incredible meltdown, there are folks who are still bullish on this sector!!!!!!!!

Yes, just published on Lyolds: Dry bulk set to rebound next month.

  • DRY freight rates are set to rise from their three-year lows by November according to some of the world’s major ship operators and brokers, but fears remain that the market still has further to fall.

    ICAP Shipping’s quarterly report today forecast a rebound in dry bulk rates by the end of November until early in 2009. Rates would then soften in the second half of 2009 and slide further into 2010.

    Record investment in bulk carrier newbuildings would see fleet growth exceed trade growth between 2009 and 2011, ICAP said.

    Maersk Broker, another leading dry bulk broker, believed rates would recover at during the fourth quarter and that charter levels would be 30% higher than levels seen at the end of September.

    The Baltic Dry Index today reached 1,976 points, an incredible 83% lower than its highest level of 11,793 points seen on May 20. Average panamax rates are now around $12,800 per day -- down from highs of around $90,000 per day five months ago. Capesize rates today hit $21,400, compared to over $230,000 per day in late May.

    “By the latter end of 2010 the kind of rates that we are seeing today, maybe even lower than this, are the rates that you can fully expect to see,” said ICAP Shipping Research managing director James Leake.

    Asked if rates had bottomed out Mr Leake said: “Maybe not yet. The (technical) signals we’re looking at show no sign of any resistance (to lower rates) being met. But the point of resistance could happen when a number of major banks and governments come to some kind of agreement to solve the trade finance issue, and that could suddenly change the landscape.”

    Mr Leake said he remained confident about China’s medium and long term demand for commodities, with shortages of thermal and coking coal in the Indian and Pacific basins increasing long haul shipments.

    Maersk Broker said any recovery “will not be as profound as we had originally expected, nevertheless the market will move towards much higher levels than we see today.”

    Classic Maritime president Jacob Fentz said he expected a market bounce “pretty soon but not back to previous levels”.

    “I think there’s too many problems in the world for that,” he said.

    He said the market meltdown was “overshooting big time on the downside just like it did on the upside.”

    Classic Maritime has about 46 capesize vessels on period charter -- about 5.5% of the global fleet of around 800.

Unlike our local financial press who simply abused journalism by continuing to quote unnamed sources, it's really great to see these industry experts willing to be quoted on their opinions!

So what they saying is that this meltdown has probably overshot big time and a recovery in the index is most likely... however do remember it is quite unlikely that one see the dizzy rates recorded.

If you ask me.. I would probably assume that the BDI index should be around 2500-3000. That's my opinion and yes I am indeed very shocked to see such a collapse in the index! And yes, I do think a rebound is quite likely in the very near future.

Would I buy any shipping stock? My answer is simply no because there are too many unknown variables in this industry right now and I don't think it's wise trying to be a hero just for the sake of trying to be one!

Over on Seeking Alpha the following posting was submitted.

  • Now a report from Naked Capitalism suggests that shipping volumes have seized up because of the financial crisis:

    I spoke to another friend of mine this afternoon, whose father has been in the shipping business forever. Pristine credit rating, rock solid balance sheet.

    He says if he takes his BNP Paribas (BNPQY.PK) letter of credit to Citi (C) today for short term funding for his vessels, they won't give it to him. That means he can't ship goods, which means that within the next 2 weeks, physical shortages of commodities begin to show up

    Readjust growth expectations?

    If this condition of inability to ship because of problems within the inter-bank credit market is widespread, then we have a case of analysts getting fooled by the data. The steps taken by the authorities to ease these conditions could then spark an enormous rally in the markets, in equities and especially in commodities. ( Source:
    here )

Other postings on the Baltic Dry Index:

1. Views On Current Weakness On Baltic Dry Index

2. The Collapse of the Baltic Dry Index

3. Goldman Downgrades Bulk Shippers!

4. Baltic Dry Index Keeps Falling!

5. Baltic Dry Index Stages Strong Rebound!

6. Baltic Dry Index Set For Strong Recovery???

7. Baltic Dry Index Plunges To Seven Month Lows!

8. The Baltic Dry Index Keeps On Plunging!

9. Baltic Dry Index Continues To Plunge

10.The Plunging Baltic Dry Index And The Dangers Of Using Forward PE!