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Moolah
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Posting #21: Mon Jan 21st, 2008 11:44 |
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Thanks for the tip!
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Moolah
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Posting #22: Thu Jan 24th, 2008 04:29 |
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Posted on Star:
Thursday January 24, 2008
Shipping costs head south
By IZWAN IDRIS
PETALING JAYA: The sharp plunge in the cost of shipping raw materials has reinforced the view that the world is heading for a major slowdown.
The Baltic Dry Index (BDI), which measures global freight rates for commodities, mostly iron ore, coal, and soft grains such as soybean and sugar, was down 42% at its last reading of 6,437 points on Tuesday from a peak of 11,039 on Nov 13.
The share prices of local dry bulk shipping companies have also collapsed in tandem with the rate fall.
Malaysian Bulk Carriers Bhd's (Maybulk) share price has plunged some 34% over the past three months, while smaller rival Hubline Bhd lost nearly half of its market value during the same period.
This is far worse than the 10.7% drop in the KL Composite Index from its recent peak.
“As dry bulk stocks have historically moved in line with the momentum of the BDI, an accurate prediction of the direction of the index will be the key to profitable investment,'' CIMB Investment Bank said in a recent report.
Many economists consider the key sea freight gauge a good indicator before official government data is released.
Basically, if demand for raw materials from industries falters, shipping rates go down and the index tumbles.
Some analysts, however, argued that after having surged beyond market expectation last year, the BDI had doubled in value and that a correction would be equally severe.
“Even at current levels, shipping rates are excellent compared with the historical average,'' OSK Investment Bank said in a report earlier this week.
Another reason for the sharp drop in rates could be the protracted negotiations between importers in China and Japan and mining companies in Australia and Brazil on the supply of iron ore and coal.
Together, iron ore and coal account for more than 50% of dry bulk trade, and changes in the volume of sea borne trade in these two commodities have an enormous impact on the sector.
“With buyers and sellers in a deadlock, the demand for dry bulk shipping has slumped,” said OSK.
Both OSK Investment Bank and CIMB Investment Bank expect rates to recover, latest by the second half of this year, once negotiations between the parties involved are concluded.
It is worth noting that the key sea freight index has somewhat stabilised over the past two days.
While it's too early to say whether the worst is over for shippers like Maybulk and Hubline, the recent sharp price declines have brought valuations of the two companies down to more attractive levels.
Maybulk is scheduled to announce its full year performance for 2007 next month and some analysts expect the company to declare a bumper dividend on anticipation of a sterling set of results.
Hubline's fleet expansion programme last year should also have a positive impact on earnings, going forward, if shipping rates remain favourable.
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Moolah
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Posting #23: Tue Jan 29th, 2008 11:11 |
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Some brief comments from Dr.Marc Faber (taken from Barron's Roundtable article)
- My next recommendation is a shipping short. I turned bearish about home-building stocks in 2005, and felt the troubles in the housing market would hurt the subprime-lending industry and spread to other sectors of the economy -- in particular, consumption. Private consumption now accounts for more than 70% of U.S. GDP, which is why I'm negative about the U.S. economy. The problems here will also affect other economies. The Chinese stock market is closely correlated with the Baltic Dry Index, a shipping index. Tanker rates have plunged, but the Baltic Dry Index is still in the sky. If you can't short the index, short DryShips [DRYS]. The BDI has fallen 28% since Jan. 7. Faber suggests remaining short DryShips.
http://online.barrons.com/article/SB120132064710419211.html?page=sp
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