Shipping stocks rally on index surge

MUMBAI: A near 100% rise in the Baltic Dry Index over the past three-and-a-half months has propelled a rally in the stocks of Indian shipping companies.


Shares of companies such as Mercator Lines, Shipping Corporation of India, Varun Shipping and Shreyas Shipping have risen up to 50% from their levels in September.

The Baltic Dry Index, which tracks global freight rates for ships carrying dry-bulk commodities such as coal and iron ore, gained on signs of recovery in global trade and increase in imports from China. The index has gained over 200% from its levels in January after falling to 25-year lows in 2012.



"We expect average shipping freight rates in 2014 to surpass 2013 levels and this will help companies to deliver higher earnings," Corrine Png, analyst at JP Morgan, said in a note. "We believe this year marks the bottom of shipping cycle and from 2014 average freight rates will improve year-on-year as the sector demand-supply growth is seen returning to balance."

Analysts, however, say in the immediate term, only those Indian shipping firms that are more into spot contracts would benefit from the Baltic Dry Index's rise.

"To realise gains from the Baltic Dry Index's rise in the last thee months, a lot depends on whether a shipping company is more into spot or into long-term contracts," said Bharat Chhoda, senior analyst at ICICI Securities. "A shipping company more into long-term contracts might lose on the current opportunity of freight rate rise in international markets. " The surge in China's iron ore trade has translated into a boost in daily earnings for capsize vessels, the largest ships tracked by the Baltic Index.Such vessels can haul 160,000–180,000 tonnes of goods and are the dominant vessels for the world’s 1.1-billion tonnes seaborne iron ore trade. China has imported a record 77.84 million tonnes in November, which was up nearly 18% compared with year ago.

Capesize daily rate on Wednesday was $40,000, that is a five-fold increase from the last year average of $7,400 a day.

India was the third largest iron ore exporter to China, after Australia and Brazil till few years back. But India has been losing on export opportunities due to mining ban in Goa and meager exportsfrom Karnataka.