Baltic Dry Index Continues To Fall As China Continues To Cut Back Its Commodity Purchases

On CNBC News: Japan Exports Dip, Stimulus Effect May Be Waning

• Japan's exports fell in July from the previous month for the first decline in two months, in a possible sign that the impact of stimulus measures in major economies worldwide is starting to wane

The Baltic Dry Index closed lower yet again at 2388.

On Monday, 24 Aug, on WSJ journal : Shipping-Cost Index Drops

• By ART PATNAUDE and NEENA RAI
  LONDON -- The Baltic Dry Index, already down 26% this month, is likely to fall further during the rest of the quarter as China continues to cut back on commodity purchases.
  
  The BDI, a barometer of shipping costs for commodities such as iron ore, coal and grain, may rise in the fourth quarter as other major world economies are expected to increase imports. However, a record number of ships scheduled to come on line this year and in 2010 will keep freight rates under pressure even as the global economy recovers, analysts say.
  
  The BDI is often seen as a key leading indicator for global economic growth and production, and the August decline has been the sharpest since October's 72% skid, when freight rates were heading below break-even levels and the shipping industry was gripped with uncertainty.
  
  Friday, the index fell 2.6% to 2468, capping a 10% decline for the week and leaving it at a three-month low. The volatile index, which surged in the first half of the year on Chinese demand for iron ore and coal, is still about four times higher than December's 22-year low.
  
  Iron-ore imports to China were driven by the country's economic-stimulus package, in turn increasing demand for Capesize ships, the largest of the four vessel classes calculated into the BDI and the primary transport method for iron ore. In July, China imported nearly 55% of globally traded iron ore and about 10% of coal. This demand, as well as huge lines outside major ports that crimped the supply of available ships, helped elevate freight rates.
  
  "There is no doubt the last few months have been unprecedented and unsustainable when it comes to China's appetite for iron-ore imports," said Peter Hickson, UBS AG's managing director of global materials strategy.
  
  Some say that while forward prices already are pricing in a further slowdown in Chinese demand, they aren't taking sufficiently into account easing port congestion and the mass of new ships scheduled to roll onto the oceans this year and next. Some 1,000 dry bulk ships are expected to be launched this year, and another 1,000 are due in 2010, said Amrita Sen, a London-based analyst at Barclays Capital. In the past five years, the average has been 300 new ships.
  
  Forward rates for Capesize vessels are $37,000 a day for the fourth quarter and $29,250 for 2010. Friday, average daily rates for Capesize vessels fell below $40,000 a day for the first time since May. They had shot up to nearly $90,000 a day in June, from about $9,000 a day in January.
  
  "If anything, the forward curve is being a touch overoptimistic," said Richard Bowler, Citigroup director of commodities.
  
  Analysts say stronger growth from developed nations will be a key factor for rates next year. "For me, the next leg up is demand [from members of the Organization for Economic Cooperation and Development]," Barclays Capital's Ms. Sen said. "Unless you see that, [freight] rates will fall."
  
  Currently, there are few signs that demand for iron ore and other shipped bulk goods is turning around. In Rotterdam, Europe's largest port by volume handled, the volume of iron ore, also called throughput, was down 76% in the second quarter from a year earlier. Iron-ore throughput at Antwerp, Europe's second-largest port, collapsed 97% in the second quarter from a year earlier.
  
  "The situation [for iron-ore shipments here] could not get any worse," said Michel Moons, commercial manager of bulk at the Antwerp port.
  
  Port officials said that could change as steel mills rebuild stocks late this year in anticipation of economic recovery. Hugo du Mez, business developer of bulk goods in Rotterdam, said, "I do expect activity to pick up in the fourth quarter."

Hmmm... if economic recovery is to be believed why is China cutting back on its commidity purchases? Does China matter?

Featured Report: CIMB Says Dry Bulk Shipping To Fly

CIMB Research had a report on Dry Bulk Sector and they reckon that the sector will fly.

• • We have become more confident that the dry bulk rally has legs for the rest of the year. As freight rates rise, asset values will rise and help lift the valuations of dry bulk shares. Investors should take advantage of the current summer drift in the Baltic Dry Index to accumulate dry bulk stocks. Here are 10 reasons.
  
  • Reason 1: Crude steel production in China is expected to rise 8.2% to hit 540m tonnes as the economic stimulus measures take effect.
  
  • Reason 2: China is expected to continue relying on imported iron ore for the majority of its consumption because the current price premium of imported iron ore over domestic sources is not excessive given the higher quality.
  
  • Reason 3: China’s iron ore inventories at ports are low relative to its increased consumption of imported ore, despite testing previous highs on an absolute basis.
  
  • Reason 4: Brazilian iron ore exports may take off in 2H09 and increase tonnemile demand. With Australian production already at close to full capacity, any further increase in global iron ore demand could draw additional shipments from Brazil and increase tonne-mile demand, thereby boosting dry bulk shipping rates.
  
  • Reason 5: Europe, Russia, Japan and the US will restart blast furnaces as apparent steel demand is higher than the current level of production.
  
  • Reason 6: Growth of property starts in China has finally gone into positive territory, suggesting that demand for construction steel is set to expand.
  
  • Reason 7: China’s demand for and production of flat steel products should also be boosted by continuing expansion of automobile sales and the recent positive trend observed for sales of white goods.
  
  • Reason 8: Steel inventories have declined across the globe while steel prices are rising. These are powerful incentives for steel mills to restart production.
  
  • Reason 9: China and Japan may see higher coal imports in 2H since Chinese electricity production growth is back in the black while Japan’s coal imports should
  start to recover with the expected expansion of industrial production in 2H.
  
  • Reason 10: The idle fleet of bulkers currently stands at just 5% of the total fleet, with the vast majority being ships more than 20 years old. This means that the idle fleet of modern tonnage is just 1%.
  
  • Maintain OVERWEIGHT on dry bulk shipping. We expect this current half year to be very strong for dry bulk shipping for the above reasons. The BDI recently closed at 2,623 points. We expect it to average 4,000 points in 2H09, implying at least 50% upside to the current level and almost double the 1H average of 2,084 points.
  
  • We have OUTPERFORM calls on STXPO, Pacific Basin, PSL and TTA, as valuations remain attractive with upside to the sum-of-parts market value of their fleets. However, Maybulk remains an UNDERPERFORM on valuation grounds.
  
  With the exception of Maybulk, we have raised target prices for all the stocks as we
  factor in the recovery of second-hand vessel values.

Baltic Dry Index closed down yesterday again.

Hmm... Pacific Basin? They just announced their earnings.

• Pacific Basin Shipping H1 Net Income $74.8 Million
  
  MarketWatch Pulse
  
  HONG KONG -- Dry bulk shipper Pacific Basin Shipping Ltd. said Tuesday its first-half net income totaled $74.8 million, or 4.2 U.S. cents a share, compared to $337.6 million, or 20.8 cents a share, a year before. Revenue fell 53% to $425.9 million from $909.9 million. The company declared a dividend of 8 Hong Kong cents a share, compared with 76 Hong Kong cents last year. ( Source: here )

And if you are a Lyold's List subscriber, you would note that Pacific Basin themselves are not bullish on the recovery of the sector at all. Pacific Basin cautious on dry bulk recovery

• THE dry bulk market faces a choppier second half as newbuilding deliveries and uncertainty over the continued commodity boom into China could depress the sector, Pacific Basin Shipping said....

On Steel Guru Slowdown signs - New build ship prices drop despite rise in steel

• Wednesday, 12 Aug 2009
  
  According to Lloyds List, analysts believe the price of Chinese new buildings will continue to decline in the second half of this year despite a 33% surge in the country's steel price between April and June.
  
  The China Iron and Steel Association earlier reported that the country's 71 large and medium steel producers recorded a profit in June for the first time in six months. The association attributed the rebound to producers significantly increasing the price of steel.
  
  Mr Cai Jiangwu Umetal.com steel analyst said that price of medium plate which is used in shipbuilding, jumped from CNY 3,000 per tonne to CNY 4,000 per tonne between April and June. However, China State Shipbuilding Corp research centre analyst Mr Zhang Changtao said the price of new buildings would continue to fall over the next six months despite the rise in plate prices.
  
  He said "The steel price is still hovering at a relatively low level compared with the Yuan7,000 and Yuan8,000 range it was at in early 2008,"
  
  Mr Zhang also noted that the bargaining power of shipyards remained weak. "Shipbuilders are reluctant to transfer the steel cost to their customers. Instead, they are more likely to slash newbuilding prices in face of the weakening demand."
  
  Steel industry analysts said the steel price was unlikely to remain at its current level.
  
  Mr Cai said overcapacity in the Chinese steel industry was at a very serious level as steel factories had significantly boosted production last year. Given the oversupply of steel, producers would not be able to keep pushing up the price.
  
  A spokeswoman for the China Association of the National Shipbuilding Industry predicted new building prices would drop further by the end of the year due to the lack of demand. She said "Most of the ship owners have no intention to extend the size of their fleets."

How now my dearest?

Want to go long in this sector?

Some Comments On The Shipping Sector

Posted yesterday, Baltic Dry Index Reverses Yet Again. The Baltic Dry Index closed down again at 1615.

Here are some comments on the Shipping Sector from KN Research.

• Shipping – tanker
  Down it goes
  
  Setting the stage for a weak year. After a spectacular 2008 w hich saw the Dirty Index hitting the high of 2347, it soon fell below the 1,000 mark at the start of the new year and continued drifting to the current all time low of 558. YTD, the average Dirty Index remained to languish at a lowly 650 vs 1510 for 2008.
  
  Tanker rates weaken as oil cargoes dwindle following OPEC production cuts. OPEC which accounted for about 42% of global oil supply in 2008 has agreed to output cuts totalling 4.2m barrels per day (bpd) since Sept 08. The cuts which are the deepest ever are equivalent to about 5% of daily global demand. With an estimated 80% compliance having already such a negative impact on tanker rates, full compliance is estimated to remove an additional 800,000 bpd from the market place which will pressure rates further. So far, OPEC had resisted calls for further output cuts despite the deteriorating global economic environment. Next production review meeting has been slated for May 28.
  
  Lower global oil demand on the back of synchronised global economic slowdown. It is now consensus that 2009 oil demand will shrink with IEA cutting forecast by 1.25m bpd to 84.4m bpd while OPEC predicted a 1.0m bpd demand contraction to 84.6m bpd. Global oil demand was 85.7m bpd in 2008 according to IEA.
  
  New tonnage to add to the woes. Platou forecasts 58m dwt new buildings to be delivered in 2009. Scrapping is estimated at 25m dwt and together with some delays in new build delivery, fleet growth is expected at 5% in 2009. Though estimates vary amongst shipping brokers with Gibson forecasting a lower 5.3% fleet growth while Drewry anticipates fleet growth of 9.0%, market expectation is that tankers rates will continue to soften as supply clearly outstrips demand.
  
  What about floating storage? Use of tankers as oil storage surged again as oil market was in contango. According to the latest OPEC monthly oil market report published in March, estimates had numbers of VLCC involved as oil storage in February 09 at about 35 to 40 vessels. However, the report also highlighted that the extra demand for VLCC storage was not sufficient to offset the effects of lesser oil cargoes from production cuts leading to VLCC rates to fall a further 19% m-o-m in February for the Middle East – to – East route.
  
  Baltic Clean Index not doing well either falling to the all time low of 378 current ly from 623 since the beginning of the year. Similar to crude oil, demand for refined petroleum products declined in tandem with the slower global economy. According to Drewry, average refinery utilisation rates in US dipped to 83.6% in January 09, well below the range of 87.5% - 92.0% seen in the past 5 years.
  
  Cautious outlook for the tanker sector. Further easing of tanker rates for the rest of 2009 seems inevitable in the face of increasing supply while demand tapers off. While we see a 10-15% potential downside for tanker rates from the current level, a collapse akin to the dry bulk market is unlikely given the gradual phasing out of single- hull and mitigating demand from storage. Near term fortune will be dictated by global oil demand which is only expected to be on the mend in 2010. Additional catalyst in sustaining rates could be the phasing out of single-hull, estimated to make up 21% of existing fleet.
  
  No change to our forecasts and recommendation on MISC (HOLD; TP:RM7.80). Though near term earnings w ill be dragged by lower tanker rates and loss making liner division, downside risk to share price is cushioned by its stable LNG operation which contributed c.55% of its pre- tax profit, solid balance sheet with net gearing of only 0.3x and strong backings from Petronas should all help to sustain the group during the current downturn.

Empty Containers At Port Not A Healthy Indicator!

Busan, South Korea.

Empty boxes pile up at Busan port

• SEOUL: South Korea's biggest port is running out of room to store shipping containers, said Park Jung Ho, an official at one of Busan's nine operators. The bigger concern is that the boxes are almost all empty.
  
  Container trade at Busan, the world's fifth-largest port, has fallen about 40 per cent in recent months, said Park, at Busan International Terminal Co. Even by stacking boxes five deep and leasing a nearby lot, he barely has room for the 31,700 containers that have piled up on his wharves.
  
  "We are spending half of what we earn from our main business for storage space," said Park, who is responsible for placement of equipment and containers for the company.
  
  Empty containers, idled dockworkers and laid-up vessels have become a hallmark of ports from Singapore to Rotterdam that six months ago were straining to meet the flow of electronics, toys, cars and equipment. For Busan, surrounded by the world's five biggest shipyards, the outlook is even bleaker after the glut of vessels caused a record decline in global orders for new ships in January.
  
  "I've never experienced anything like this before," said Ryoo Chi Ho, manager at a shipping company in the port. "It's far worse than what we went through during the 1997-98 Asian crisis, since the biggest consuming nations were still doing fine then. Now, everyone's hit."
  
  Singapore, the world's biggest container port, handled 1.97 million 20-foot containers in January, 20 per cent less than a year earlier. In Shanghai, the second-largest, traffic was down 19 per cent, while Hong Kong, the No. 3, suffered a 23 per cent drop, according to the websites of the port authorities. Busan handled 894,172 20-foot standard containers in January, the fewest since February 2005, the Busan Port Authority said on its website.
  
  "Things have really started to get bad - labourers spend their entire day waiting for a call from the docks that they have a job," said Kim Sang Cheul, a dockworker at Busan. "People spend all day staring at their phone as if staring at it can make it ring. You're lucky if you get a call."
  
  Kim said most workers' earnings have fallen by half and some were taking home less than 1 million won (US$672) a month.
  
  The dockworkers' troubles may herald a similar fate for employees at the shipyards in Gyeongsang Province, where Busan is located, including Hyundai Heavy Industries Co, Samsung Heavy Industries Co and Daewoo Shipbuilding & Marine Engineering Co.
  
  While global shipyards are still working through contracts placed since 2006, new orders have plummeted in the past four months. Hyundai Heavy, the world's largest shipbuilder, said on February 27 that orders dropped 54 per cent in January, mostly for equipment such as marine engines and oil rigs. The company said it has had no orders for new ships since September.
  
  "It's pretty tough now," said Lee Jong Chul, vice-president of STX Group, owner of the world's fifth-largest shipyard. "There have been requests for cancellations, but we persuaded owners to revise orders to a different vessel type or contract terms." - Bloomberg

Neptune Orient Lines (NOL) Suffers Huge Losses - Big Ouch For Temasek!

Here's another significant set of news.

• Neptune Orient Predicts 2009 Loss as Recession Damps Trade
  
  By Chan Sue Ling and Seonjin Cha
  
  Feb. 10 (Bloomberg) -- Neptune Orient Lines Ltd., Southeast Asia’s biggest container carrier, said it will report a loss this year as the global recession damps demand for transporting Asian- made goods.
  
  The company had a net loss of $149 million in the fourth quarter of last year compared with a profit of $196 million a year earlier, it said in a statement today. It’s the first quarterly deficit in six years. The Singapore-based shipping line didn’t elaborate on the loss prediction.
  
  Neptune Orient’s cargo fell 14 percent in the last quarter as the global recession cut demand to move Asian-made toys and furniture. The worst economic crisis since the Great Depression has hammered rates, prompting Neptune Orient, A.P. Moeller-Maersk A/S and other lines to take vessels out of service, cut routes and eliminate jobs.
  
  “The container-shipping industry is just starting to get worse,” said Um Kyung A, an analyst at Shinyoung Securities Co. in Seoul. “There’s no guarantee we can see a recovery in the second half.”
  
  Neptune Orient’s fourth-quarter results included $72 million of “restructuring charges,” which comprised costs for eliminating some jobs, Cedric Foo, chief financial officer, told reporters after the results. An annual net loss would be the first in seven years, according to data compiled by Bloomberg.
  
  Neptune Orient gained 5.1 percent to S$1.24 at the close of trading in Singapore today. The results were announced after the stock market closed for trading. The stock tumbled 71 percent last year, the biggest annual drop in at least two decades, according to Bloomberg data.
  
  ‘Pronounced Downturn’
  
  APL Ltd., Neptune Orient’s container-shipping unit, carried 574,300 forty-foot equivalent boxes in the three months ended Dec. 26, based on company filings. Average container freight rates gained 7.2 percent in the quarter to $3,077 per forty-foot equivalent unit.
  
  “Container-shipping and related businesses are in the midst of a pronounced downturn which is expected to extend through 2009,” the company said. “Reduced consumer demand worldwide, coupled with excess supply of new vessel tonnage is creating a very difficult business environment.”
  
  No Growth
  
  The global economy will show little or no growth this year as more than $2 trillion of bad assets in the U.S. help sink economies from Russia to the U.K., the International Monetary Fund said Jan. 28. Consumer spending in the U.S. fell in December for a record sixth consecutive month, capping the worst year since 1961, as companies slashed 2.6 million jobs last year.
  
  “Freight rates have dropped and volume growth this year is much worse than expected,” said Ryu Jae Hyun, an analyst at Mirae Asset Securities Co. in Hong Kong. Rates could fall by 35 percent this year and 7 percent in 2010, HSBC Holdings Plc analysts Azura Shahrim and Mark Webb wrote in a Jan. 15 report.
  
  Neptune Orient said in November it planned to slash 1,000 jobs, or 9.1 percent of its workforce, due to weakening demand and a “grim” profit outlook.
  
  The company expected that the job cuts, mostly in North America, would lower fourth-quarter earnings by about $33 million. It also pared capacity on the Asia-Europe and transpacific routes by 25 percent and 20 percent.
  
  Neptune Orient said new vessel commitments, both owned and chartered, total 28 with deliveries due to begin this year. Some deliveries have been pushed back to 2012, Eng Aik Meng, president of the liner division, said at a press conference today. The company may also return some ships to owners as charters expire, depending on demand, he added. As at December, the company had idled 12 ships.
  
  The company plans to pay a total dividend of 8 Singapore cents a share for 2008 and will give annual payouts of 20 percent of net profit going forward.

Source: here

Here is the chart of NOL.

And guess what?

Business Times carried a snippet of this news. Neptune Orient Lines swings into the red

• SINGAPORE: Singapore container shipper Neptune Orient Lines swung to a loss in the fourth quarter following a slump in cargo volumes due to the global economic downturn.
  
  NOL, 66 per cent-owned by state investor Temasek, posted US$149 million (US$1 = RM3.59) in net loss for the three months ended December 31, compared to a net profit of US$196 million a year ago. NOL a loss for 2009. — Reuters

NOL is 66 per cent-owned by state investor Temasek????

Big Ouch yet again for Temasek!

See also this posting: Temasek Holdings Chalking Up Massive Paper Losses Everywhere!

On Star Business: Temasek portfolio 31% down in eight months: Report

• SINGAPORE: The portfolio of Singapore sovereign wealth fund Temasek Holdings, which helped bail out Wall Street icon Merrill Lynch, fell 31% over eight months last year, a minister said yesterday, according to local radio.
  
  The report followed Temasek’s announcement last Friday that the wife of Singapore’s prime minister will step down after five years as chief executive of Temasek, one of the world’s largest sovereign wealth funds.
  
  Senior Minister of State for Finance Lim Hwee Hua told parliament that Temasek’s portfolio of investments fell to S$127bil (US$84.7bil), 31% down from S$185bil, in the eight months to the end of November, 938Live radio reported.
  
  But Lim said the fall in Temasek’s portfolio value was less than declines in two stock indices, including the MSCI Singapore Index, which she said dropped 44% in Singapore dollar terms over the same period, the report said.
  
  The departure of Temasek chief executive Ho Ching, wife of Prime Minister Lee Hsien Loong, comes amid questions over some of its investments, most recently the billions pumped into former US investment bank Merrill Lynch since December 2007.
  
  Merrill Lynch suffered massive losses from high-risk US subprime mortgage investments, and Bank of America acquired it on Jan 1 after fears rose over whether the Wall Street firm would survive.
  
  Last August Temasek announced that in the year to March its portfolio rose in value to S$185bil, up 13% from the previous year.
  
  It also reported a record profit of S$18.2bil for the year.
  
  Lim was responding in parliament to queries about how the global financial crisis has affected Temasek and the country’s other sovereign wealth fund, the Government of Singapore Investment Corp (GIC).
  
  In late 2007 and early last year GIC injected billions of dollars into Swiss bank UBS as well as US banking giant Citigroup, both of which suffered massive losses from US subprime, or higher-risk, mortgage investments.
  
  Subprime troubles later evolved into the worldwide financial slowdown.
  
  UBS Tuesday posted an annual loss of US$17bil, the largest in Swiss corporate history, and announced 2,000 new job cuts.
  
  Lim said this was not the first time GIC and Temasek have seen major declines in markets.
  
  ”In spite of these market gyrations, including the current downturn, for the 20-year period to late 2008 Temasek had achieved annualised returns of about 13% ,” she said on 938Live.– AFP
  
  ”GIC, which has a more diversified and conservative portfolio, has also had creditable returns over the 20-year period.”
  
  GIC, one of the world’s largest sovereign wealth funds, in September said its nominal rate of return over the past 20 years was 7.8% in US dollar terms.
  
  Sovereign wealth funds are a form of government-created investment vehicle.
  
  Lim said GIC and Temasek had the resources to weather ups and downs over multiple economic and market cycles.
  
  Temasek chairman S. Dhanabalan insisted Friday there was no connection between Ho’s departure and the Merrill Lynch stake, or an earlier controversial venture into Thailand’s Shin Corp.
  

Asia's Container Shippers Hit Bad

Caught this newswire.

• SINGAPORE (Dow Jones)--Asia's container shippers are headed for an unprecedented shakeout, illustrating the dramatic collapse in world trade that has combined with overcapacity to bring freight rates to their lowest level in eight years.
  
  Many shippers have idled scores of ships and re-negotiated new ship deliveries.
  
  Now, takeovers and bankruptcies loom even as companies and analysts try to gauge the bottom.
  
  In the latest sign of distress, two major alliances of shippers Tuesday announced an indefinite suspension of their joint services from Asia to ports in the Black Sea and the Mediterranean, including Georgia, Ukraine, Russia's Black Sea ports, Turkey, and Israel.
  
  The New World Alliance, made up of Singapore's APL Ltd., a subsidiary of Neptune Orient Lines Ltd., Japan' Mitsui O.S.K Lines Ltd., and Hyundai Merchant Marine Ltd., and the Grand Alliance that includes Germany's Hapag-Lloyd, Malaysia's MISC Bhd., Japan's Nippon Yusen Kaisha, and Hong Kong's Orient Overseas Container Line together had eight ships, each with a capacity of 5,000 TEU, plying the route. Industry executives say the Asian container shipping industry could shrink by as much as a third over the next four-five years, if the global economy doesn't worsen.
  
  "We've never seen it so bad before. Quite frankly, some won't survive," Ron Widdows, chief executive of NOL, the world's eighth-biggest container shipper in terms of capacity, told Dow Jones Newswires.
  
  In December, NOL said it would lay off 1,000 people worldwide. For the third quarter ended December, the company posted an 82% net profit decline on year and flagged an operating loss for the fourth quarter.
  
  About two thirds of the world's top container carriers are Asia based representing slightly more than half of global capacity, which is measured in twenty-foot equivalent units, or TEUs.
  
  Singapore is the world's busiest container port closely followed by Shanghai and Hong Kong.
  
  According to industry estimates, shippers operating the Asia-Europe route, the busiest for container shipping among continents given its numerous ports, expect to lose a combined $5 billion this year.
  
  In September, privately owned Shandong Yantai International Marine Shipping Co., a major player on the China-Japan container route, and South Korea's C&Line Co. also privately owned, ceased operations.
  
  Analysts say whether or not a company is able to survive the downturn will depend on its debt levels, ability to manage operating costs, and government support.
  
  
  
  

Shipbuilders Like Keppel and Cosco Getting Hit

Published on Bloomberg News: Keppel, Cosco Drop as Shipbuilding, Offshore Orders Terminated

• Jan. 12 (Bloomberg) -- Keppel Corp. and Cosco Corp. Singapore Ltd. dropped in Singapore trading after customers terminated orders to build ships and offshore platforms, raising concern slowing demand will lead to more cancellations.
  
  Keppel, the world’s largest builder of oil rigs, fell as much as 7.3 percent to S$4.56 and traded at S$4.62 as of 10:31 a.m. local time, poised for its largest drop since Dec. 1. Cosco Singapore, a Chinese shipbuilder, slumped as much as 8.6 percent to 80 Singapore cents and last traded at 81 cents, set for the lowest close since Dec. 2.
  
  The worst global recession since the Great Depression has caused funds to dry up, making it difficult for shipping lines and oil explorers to arrange loans for new vessels and drilling equipment. Keppel said on Jan. 9 Scorpion Offshore Ltd. terminated a $405 million rig order, while Cosco Singapore said an Asian shipping line canceled two contracts.
  
  “Singapore yards, including Keppel, may continue to face potential cancellations from highly-geared rig owners” that have difficulty funding contracts out of future operating cashflows, Serene Lim, a Singapore-based analyst at DMG & Partners Securities, said in a report today.
  
  Opportunities are being explored for third parties to take over the building of a drilling rig after Scorpion canceled the order, unit Keppel Fels Ltd. said in a Jan. 9 statement. Talks are also on to terminate a contract with Lewek Shipping, Keppel said.
  
  Revised Terms
  
  Seadrill Jack-Ups Ltd. will continue with the construction of two rigs on “revised terms,” Keppel said without elaborating. Seadrill also revised terms of its contracts with SembCorp Marine Ltd., the companies said on Jan. 9. SembCorp Marine, the world’s second-largest rig-builder, declined 5.4 percent to S$1.74.
  
  Great Eastern Shipping Co., India’s second-biggest sea-cargo carrier, canceled orders for two of four vessels placed with Cosco last week. Cosco has dropped 16 percent this year after retreating 84 percent in 2008, the worst performer on the Straits Times Index. The Baltic Dry Index slumped a record 92 percent last year and last week traded at 872.
  
  “We expect more cancellations and deferments in the first half of 2009 as the Baltic Dry Index continues to hover below 1,000 levels,” Lim wrote.

Massive Warnings From Shippers On Their Drying Baltic Dry Index

Ok, the Baltic Dry Index has plunged again. The index is now at 851 points!

Now this is not what I want to post today.

Susan Lee has written a decent write on the Baltic Dry Index on Forbes the very last two passages summarizes why the Index is so important.

• A major factor behind the run-up was, of course, the commodity bubble. And the Baldry proved its worth as a leading indicator by turning down two months before that bubble burst. Plus, I would also point out, the Baldry forecast the slowing growth in China. Chinese demand for raw materials from the West--including a ravenous appetite for coal and iron ore--has been fierce. Some say it's been a critical driver of the Baldry. So the announcement a few weeks ago that growth in China has slowed wasn't news to those who've been following the six-month collapse of the Baltic Dry Index.
  
  Simply put, if you're in the market for a quick and efficient way to spot the bottom of the global recession, watching the Baltic Dry is a very good bet.

Source: http://www.forbes.com/opinions/2008/10/30/baldry-baltic-index-oped-cx_sl_1031lee.html

And for the following two articles from two shipping giants highlights how dire the situation is.

• Oct. 31 (Bloomberg) -- Goldenport Holdings Plc, a U.K-listed shipowner, fell by a record amount in London trading after saying trade in commodity shipping has ``virtually halted.''
  
  Goldenport fell as much as 21 percent to 88 pence before closing at 93 pence, valuing the company at 65 million pounds ($105 million). The stock has plunged 78 percent this year, compared with a 52 percent drop in the nine-member FTSE All-Share Industrial Transportation Index. The shares started trading in March 2006.
  
  ``Activity in the dry-bulk segment has virtually halted, with minimal trade taking place globally,'' Chief Executive Officer Paris Dragnis said in a statement today. Future leases will probably earn ``significantly lower rates.''
  
  The company, based in Majuro, Marshall Islands, said customers who hired its vessels will likely return them as soon as they can, cutting contracted sales for the three years to 2010 by 8 percent to $324 million. One of its customers is Britannia Bulk Holdings Inc., which on Oct. 29 said its lenders asked for immediate repayment of $158.7 million outstanding on a loan.
  
  The Baltic Dry Index, a measure of freight costs on international trade routes, has dropped 93 percent since May amid an iron-ore price dispute between China and Brazil and a freeze in the supply of credit to purchase cargoes.
  
  The shipping line said the Achim, a container ship, was returned by a customer a month earlier than ``initially agreed,'' causing Goldenport to incur $700,000 in fuel and port fees. The ship was sold for demolition.
  
  ``I would like them to clarify what risks they have under each vessel,'' said Alex Chan, a London-based analyst at NBG International Ltd., who cut his rating on the stock to ``hold'' from ``buy'' on Oct. 28. ``I would like to see what other parties they deal with so we can analyze what risks are involved.''
  
  Goldenport's protection and indemnity insurer is facing a ``growing deficit'' and will charge the shipping line $2 million as a one-off fee, the company said. ( Source: here )

WOW!

• ``Activity in the dry-bulk segment has virtually halted, with minimal trade taking place globally,'' Chief Executive Officer Paris Dragnis said in a statement today. Future leases will probably earn ``significantly lower rates.''

That one statement above is outright scary. We are not talking just talking about lower shipping rates but that the activity has halted brings a whole new perspective to the shipping industry!

On Bangkok Post, one should really pay attention to what Chandchutha Chandratat, managing director of Thoresen Thai Agencies Plc (TTA) is saying. TTA: Rate plunge will hurt

• Thoresen Thai Agencies Plc (TTA), the country's biggest dry bulk shipper, says a sharp drop in freight rates in the wake of the global credit crunch would hit its results in the next two years.
  
  Shipping rates have plunged to a six-year low as cargoes are stranded by tighter trade finance and the global economic slowdown curbs demand for raw materials, said M.L. Chandchutha Chandratat, the TTA managing director.
  
  ''Traders are finding it hard to get letters of credit that guarantee payments for goods, while banks are wary of financing commodities and shipping transactions,'' he said. ''This symptom has already been felt, and yes, this is going to hit us in 2009 and 2010.''
  
  The Baltic Dry Index, the main gauge of shipping costs for commodities, fell 5.8% to 925 on Wednesday, down 92% from its peak in May at 11,793.
  
  TTA earned 4.97 billion baht on revenues of 21.3 billion last year.
  
  ''2008 will be the year we break all our records in terms of both profit and sales,'' M.L. Chandchutha said of full-year results due for release on Nov 28.
  
  He did not give a specific forecast, but 11 analysts polled by Reuters Estimates expect TTA to post a 57% rise in 2008 net profit to 7.8 billion baht, on revenues of 30.2 billion, up 42%.
  The company's 10 billion baht in cash and its low debt would help it to weather the financial storm, he said.
  
  To help offset the impact of a slowing world economy, the company planned to look at investments in energy and infrastructure, M.L. Chandchutha said.
  
  TTA had no plans to cut capacity yet, ''but we won't make any investments for at least three to six months'', he said.
  
  TTA shares, down nearly 80% this year after peaking at 56 baht in May, closed yesterday on the Stock Exchange of Thailand at 10.70 baht, up 85 satang, in trade worth 490.93 million baht.
  
  While some companies have taken advantage of the stock slump to buy back their shares, M.L. Chandchutha said he had no such plans.
  
  ''Buying back shares hasn't really stopped foreign funds from selling,'' he said.

And it makes one wonder why the Malaysian bulk shippers have chosen to remain silent now.

Other postings that matter:

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!
11. Baltic Dry Plunges Below 2000!!!
12. Admist The Plunging Baltic Dry Index, Dr. Marc Faber Warns That Some Shipping Lines Could Go Bankrupt!
13. Comments Heard Admist The Plunging Baltic Dry Index ( recommended reading!)
14. Shipping Giant Neptune Orient Lines (NOL) Warns of Losses!

Admist The Plunging Baltic Dry Index, Dr. Marc Faber Warns That Some Shipping Lines Could Go Bankrupt!

WOW!

Let me say again... WOW!

The Baltic Dry Index has continued to plunge in a rather most dramatic fashion!

As can be seen, the Baltic Dry Index has plunged anoter 10% or 194 points! The Baltic Dry Index is now at 1615 points!

Holy mama cow!

From the UK Guardian: Baltic sea freight index falls to 5-1/2 year low.

Comments made by Nick Collins is most worrying!

• The index has seen some of the biggest falls in its 23-year history in the last week as the deepening financial crisis and slowing demand in China saps confidence.
  
  "It's meltdown isn't it...we're close to the bottom, but it probably will go lower," said Nick Collins, director of dry trade at Clarkson PLC ship consultancy in London.
  
  "It's very serious because it's triggering a lot of defaults in the market and that could have a knock-on effect," he said, without specifying what that would be.
  
  Collins was referring to charterers who had hired merchant ships for contracted periods of time but were returning them early because there was no longer a commercial incentive to keep them trading.
  
  "The fear is that this will trigger a number of financial embarrassments, though I don't think that kind of thing is going to bring anybody down at the moment," Collins said.
  
  Analysts have said that falling ocean freight prices to move goods and resources in the other two main ship sectors, containers to move finished goods, and tankers to deliver oil, point to slowing international trade.
  
  "These indexes are the evidence that that is true," Collins said.
  
  Container trade ferrying manufactured goods on some of the world's top export routes, between Asia and the U.S. west coast, and between Asia and Europe, have also been hammered.
  
  "And that's all because of looming recession in the Western world," Collins said.
  
  "People have been concentrating on the banks but this is evidence that it (the crisis) is filtering out in the real economy and that trade is collapsing," he said.
  
  Sea freight prices for dry commodities usually peak in the fourth quarter on utility demand for coal in Asia and the start of the export season for American grains.
  
  Analysts pin much of the slump on slowing demand for iron ore and coal in China. Stocks are high there, at a time when some of China's largest steelmakers have cut supply because of a slowdown in manufacturing.
  
  Iron ore and coal demand are major drivers of sea freight prices for dry bulk resources, accounting for about half of the world's trade between them on the dedicated fleet.

And if you think that is bad enough, have a look at the following commentary posted on BusinessMirror.com. Economic slump may push shipping lines into bankruptcy, says investor

And which investor?

Dr. Marc Faber!

• SINGAPORE—The global economic slowdown will push some shipping lines into bankruptcy as demand for commodities cools and trade slows, investor Marc Faber said.
  
  “This is an industry that could be hit harder than what has been expected,” Faber, who predicted the 1987 stock-market crash, said in an interview Monday in Singapore. “We are really at the very beginning of an economic slump, and it could last for quite sometime.”
  
  The Baltic Dry index, a measure of commodities-shipping costs, has plunged 82 percent in the past year as Chinese steelmakers have cut iron-ore imports on slower demand. Container rates have also fallen because US and European consumers are buying less Asian-made furniture, toys and clothes.
  
  “There has been an acute and significant decrease in near-term demand for shipping capacity,” Jon Windham, Winnie Guo and Yumi Park, analysts at Macquarie Group Ltd., wrote in an October 9 report. “The primary cause is a significant fall off in general demand driven largely by companies’ fears to extend cash.”
  
  Svithoid Tankers AB, a Swedish shipping line, said Monday that it intends to file for insolvency liquidation after failing to secure new financing.
  
  Companies worldwide are struggling to secure credit as the collapse of Lehman Brothers Holdings Inc. and the wider economic slowdown have caused banks to cut lending because of increased concerns about getting their money back.
  
  Shipowners will also likely find it more expensive to get funding, according to Faber, managing director of Marc Faber Ltd. and publisher of the “Gloom, Boom & Doom” report. The maritime sector needs about $300 billion over the next three to four years to fund the construction of vessels already on order, according to Nordea Bank Finland Plc., the largest lender to the sector last year.
  
  The credit crunch may also impact shipping by making it harder for traders to secure letters of credit, the financing notes that are to key to many transactions.
  
  “The banks don’t trust each other,” Faber said. “Some shipments may be delayed because of fears the letter of credit won’t be accepted by another bank.” -- Bloomberg

Other recent postings made 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!
11. Baltic Dry Plunges Below 2000!!!

Regarding the Dry Bulk Shipping Sector.

I was reading Blogger Kirk's daily report, Time's A Wastin, when I found this very interesting link posted by Kirk: "Much can be learned from understanding sentiment cycles. Teresa Lo studies the dry bulk shipping industry".

I like that posting by Teresa Lo a lot.

In her article, she focused on 2 phases of the Sentiment Cycle.

• The two phases we’ll focus on is Enthusiasm and Disbelief:
  
  Enthusiasm
  Once it is widely accepted that economic and corporate fundamentals are supporting higher prices, a bell goes off. The bull survived The Big Dip. Those who had previously been afraid now have plenty of reasons –- and proof -– that it is safe to go back into the market and buy again.
  
  At this point, we detect a subtle change in psychology, a shift from the fear of loss to the fear of missing out, and the appetite for risk becomes evident. Investors buy on faith, bolstered by analyst and media reports projecting the trend to continue. As price rises to new highs, they all scream, “It’s a breakout!” They are supremely confident that the best is yet to come.
  

How true isn't it? The fear of missing out!

Teresa then starts her report on the dry bulk shipping sector by stating the following:

In October 2007, stories by the financial media regarding Dry Bulk Shipping were overwhelming bullish. Let’s check the headlines:

• Cramer’s ‘Mad Money’ Recap: Bulk Up on Dry Bulk ShippersNobody talks about dry bulk shipping stocks because they’re boring. “I can’t throw pies or wear funny clothes when I talk about dry bulk shipping,” Cramer said. The money to be made on these stocks, however, is very exciting; they provide “huge and reliable dividends,” he said. Dry bulk shipping stocks have risen enormously since July, when Cramer recommended them. “This industry is one of the great bull markets in the world right now,” he said. Even though investing in these stocks is “not sexy,” sometimes you have to go for the easy money, and that’s what dry bulk shippers offer.
• Jefferies ups targets on bulk carriersOct 16 (Reuters) -Jefferies & Co raised the price targets on several shipping companies, saying the outlook for the dry bulk shipping market remains attractive as significant quantities of new iron ore production capacity come on-line over the next 12 months.
• Bear upgrades U.S. ocean shipping sectorOct 10 (Reuters) -Bear Stearns upgraded the U.S. ocean shipping sector to “market weight” from “market underweight,” saying it was positive on dry bulk fundamentals over the next 6 to 18 months.”
• Bear upgrades U.S. ocean shipping sectorOct 10 (Reuters) -Bear Stearns upgraded the U.S. ocean shipping sector to “market weight” from “market underweight,” saying it was positive on dry bulk fundamentals over the next 6 to 18 months.”
• Smiling Dry-Bulk Shippers See The Boom Times Lasting For Years- Investors Business Daily, September 28, 2007

Now obviously this case study would be interesting as there are a number of dry bulk shipping stock listed locally.

And in this very same period, Oct 2007, Star Biz carried the following article: Shipping stocks head north

• PETALING JAYA: Shares in shipping firms rose yesterday as freight rates for dry commodities like coal, iron ore and grain climbed to a new high.
  Shares in Malaysian Bulk Carriers Bhd, which derives 70% of its business from dry-bulk shipping, ended 4 sen higher at RM4.80 yesterday while smaller sized Hubline Bhd gained 1.5 sen to 76.5 sen in active trade of 8.18 million shares.

Teresa then states her second phase:

• Disbelief
  The market fails to go higher, and indeed many of the early leaders have broken down under the 50-day moving average, giving technicians the Subtle Warning. This marks the beginning of the ‘something is not right’ gut feeling, but in the absence of bad news, investors hold on to hope. Not only are they heavily invested in the market, they are psychologically invested in being right and they ignore anything that does not go with their worldview. Indeed, they even wonder aloud why their beloved stocks cannot go up amidst good news, higher earnings guidance and analyst upgrades.

How true isn't it? Tersea then states:

• Almost all of the high fliers in the Dry Bulk Shipping industry have pulled back from their highs. Investors are looking around for hopeful articles. The “handholding” phase has begun. A excellent example is the industry review piece from Barron’s that also focused on specific companies. They worked the analysts and company executives for quotes and even did a video interview with Bear Stearns shipping analyst Scott Burk:
  
  Dry-Bulk Shippers Are on Sail
  DRY-BULK-SHIPPING STOCKS HIT SOME ROUGH seas late last year, but barring a U.S. recession and global slowdown, they should be in for smoother sailing in 2008. While companies across the sector are poised to benefit, two standouts are Diana Shipping and Genco Shipping & Trading. Both shippers will acquire new vessels and will have the opportunity to lock in higher contract rates this year. That would provide the company and investors with reduced earnings uncertainty despite an iffy economic outlook. After roughly tripling from their lows in early 2007 to their peaks at the end of October, Diana and Genco..”
  Video Interview- Scott Burk Bear Stearns shipping analyst

She then provides 8 charts for 8 different Bulk shipper.

I will just reproduce one of them here.

Now here is the interesting exercise. Let's compare with some of our Bulk Shipping stocks.

1. Maybulk.



2. Swee Joo.



3. Hubline.



Compare these 3 stocks with the stocks Teresa had posted in her reserach.

How?

Did you see how they all 'seemed' to have formed a peak on Oct 2007?

Conclusion?

Ah... I do not give investment advice. Hence, perhaps, you might want to give the rest of Teresa article a read here!

ps. On Dec 31st, the following article was posted on Star: Container, dry bulk seen on downtrend

• Container, dry bulk seen on downtrend
  
  By SHARIDAN M. ALI
  
  THE container and dry bulk shipping industry is forecast to trend downwards next year due to anticipation of weaker Asia-to-the United States trades amid a situation of supply exceeding demand.
  
  Citi Investment Research (Asia-Pacific), in its latest transportation outlook report, said global TEUs (twenty-foot equivalent units) were expected to see a 9% growth next year from 10% this year.
  
  “This is based on some deceleration in Asia-Europe outbound trades and continued softening in Asia to US trades,” it said.
  
  The research house said for Asia to US trades, Transpacific remained the most important market in the world and “it has not been doing well”.
  
  “Behind a marketing push by container liners on pricing, carrier executives have talked openly of slashed capacity and flat volumes,” it said.
  
  It said the volumes to the US West Coast fell short of this year's forecasts, which originally called for 10% growth. It was downgraded at 7% to 8% and recently, at 2% to 5%.
  
  “Based on current data, growth is about 2% to 3%,” it said.
  
  On the positive side, shipping lines made customers pay for higher inter modal pass-through charges.
  
  “Also, the generous capacity cuts by prominent shipping group Maersk helped the market, to an extent.
  
  “Maersk, in late 2006 and early this year, took out about 20% of its capacity from this trade,” it said.
  
  Citi Investment said the Transpacific rates in the second half this year remained several percentage points below last year's despite higher fuel and other costs.
  
  “We believe next year will follow a similar deterioration trend due to weaker demand and lower rates from the US property bubble,” it said.
  
  It added that the third quarter of this year all-in rate on the Transpacific Eastbound was lower by 0.5% at US$1,707 per TEU.
  
  “This rate includes the higher fuel costs, which the container lines will try their best to redress next year.
  
  “We believe 2008 will be another difficult year despite news that CSCL shipping line has joined the Transpacific Stabilisation Agreement (TSA) that now represents about 80% of capacity in the Transpacific Eastbound,” it said.
  
  TSA is a research and discussion group of major container shipping lines, offering ocean and inland transportation, logistics and supply chain services from Asia to the US.
  
  To counter the downturn, the research house said, the Asia-Europe trade combining the North Europe and the Mediterranean, was expected to be the world's largest trade by box volume next year “if the Asia to Europe trade grows more rapidly to the US”.
  
  “Given the run rate of growth has been at 20% or above this year, congestion is feared in many North Europe ports.
  
  “In August and September, overall growth slowed to about 16% to 17%, and base case growth can still be expected to hold at 15% next year,” Citi Investment said.
  
  Interestingly, it said, the real driver of trade growth was strong demand from Europe for China-made goods.
  
  “Growth into the Mediterranean has been even stronger than North Europe, partly because of growth into the Black Sea area,” it said.
  
  For dry bulk, the research house forecasts that supply would exceed demand by end 2008 due to increased capacity.
  
  “Near-term deliveries continue to creep up due to off-the-radar ship orders being completed.
  
  “Weaker tanker rates and the phasing out of single hull tankers have resulted in many ship owners converting their tankers into carrying dry bulk. This creates a surplus in capacity,” it said.
  
  Citi Investment said the latest Clarkson numbers for bulk deliveries next year would be 29.1 million dead weight tonnes (dwt).
  
  “Oil tanker conversions threaten to add another 7 million dwt next year, which can bring total supply growth in 2008 to almost 9%, before accounting for potential scrapping of old vessels and order book slippage,” it said.
  
  “Still, we are weary of putting too much hope on slippage, since we expect 2008 deliveries to continue creeping upwards,” it added.
  
  Although the supply and demand situation may be debatable in terms of where it would take the dry bulk market, the research house expects it would be down.
  
  “Bulk capacity will hit at 9% to 10% growth levels like we have never seen before.
  
  “Total demand growth, including special factors such as congestion and demand growth for long haul will have to accelerate from its recent China-driven, all time high levels to keep pace with supply,” Citi Investment said.
  
  It said demand growth seen from the China-driven growth since 2003 to date had been only 7.24% per year on average and on a longer-term, demand had only grown 3.4% per year from 1980 to 2007.
  
  “Also, if one believes the growth in China will slow down, then one will be hard-pressed to show how demand can overcome the current order book,” it added.
  
  Nevertheless, it said, bulk stocks could have one more phase of bullish market next year though downside risks could be on the rise as the year progressed.
  
  On shipping stocks, the research house, which has an “underweight” call on the shipping sector, has rated a “hold” on shipping companies Wan Hai and Precious.
  
  It is maintaining a “sell” call on CSCL and Hanjin based on their high valuations.