So what does all this mean for dry-bulk stocks, which tend to lag moves in freight rates?
Though demand will remain brisk because of China, oversupply will continue to cast a shadow over the industry, cautioned Credit Suisses's Greg Lewis in a research note.
Counter-intuitively, rising rates could even be cause for longer-term alarm, because firmer rates could dissuade ship owners from canceling or delaying their new vessels. Why spike an order if it looks like you can make some good money on a new ship? But if too many owners think the same way, too little of the orderbook will be canceled, and oversupply will loom once again.
Just last week, fixed-income analysts at Goldman Sachs advised investors in a 40-odd page report to prefer the bonds of tanker companies to those of dry bulk. Why? Essentially the reason described above. Ship owners will find plenty of funding for their new orders from banks and other sources entranced with firm freight rates."In our view, if most market observers were bearish on Chinese iron ore imports (for example), then perhaps some shipping companies would not be as motivated to compete construction of their vessels," the Goldman analysts wrote. "But the better demand picture, the better the investment thesis that companies will be able to present to their boards and their banks, and the more capital will move to shipping in order to participate in this rosy market." In the end, then, "we think the dry bulk orderbook should far overwhelm" an increase in dry bulk demand in 2010, keeping rates capped -- and, presumably, stock prices. Around the dry-bulk equities world Wednesday, stock prices were mixed. DryShips was falling 1.3% to $5.87, Diana Shipping (DSX) was gaining 0.3% to $15.60, Genco was up 2.8% to $23.49, while the all-spot-market Baltic Trading (BALT), which Genco founder Peter Georgiopoulos took public last month, was falling 0.8% to $14.01. Elsewhere, Navios Maritime Holdings (NM) was down 4% to $6.93 and Eagle Bulk (EGLE) was losing 1.3% to $5.47. Excel Martime (EXM) was in positive territory, gaining 1.3% to $6.89. -- Reported by Scott Eden in New York
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