NEW YORK (TheStreet) -- A slew of dry-bulk shipping companies -- Diana Shipping (DSX) - Get Report, Excel Maritime (EXM) , Eagle Bulk Shipping (EGLE) - Get Report and Genco Shipping & Trading (GNK) - Get Report -- among a number of smaller players -- hit the news feeds over the last week, and, if they indicate anything about outlook for dry-bulk shares, it's this: proceed carefully.
Why? The same two factors that have held sway over the sector for more than a year: China and oversupply fears.
Just on Tuesday and Wednesday, data released by the Beijing bureaucracies showed that slowing had taken hold of the world's most dynamic economy, helping pressure world equities. With the
Dow Jones Industrial Average
plunging by more than 200 points Wednesday in the wake of the Fed's jaundiced view of the U.S.'s economic recovery, the high-beta shares of dry-bulk shipping outfits also declined.
was down nearly 7%, Diana Shipping 3.4%, Eagle Bulk 4%, Genco 3.2%.
Talk to many C-suite personnel in the dry-bulk trade, however, and you get a brighter picture than the headline China data and the stock-market reactions might otherwise paint. John Wobensmith, CFO of Genco and CEO of its sister company,
in an interview that evidence of China's July slowdown had been known to the dry-bulk trade for weeks. Freight rates in the industry had, after all, cratered between June and July, driven down to levels not seen since the financial crisis by Chinese iron-ore buyers basically pulling out of the market entirely.
"We're just now seeing them come back," Wobensmith said, who cited an increasingly popular thesis for China's decision to sit out of the market toward the end of the second quarter. It has to do with the new quarterly pricing system for seaborne iron ore -- the supply arrangements used by the world's big three miners and the world's biggest steelmaker.
Here's the thesis (which is certainly more than just a thesis at this point): The average selling price of iron ore on the spot market during each quarter is used to help set the price for the following quarter. The Chinese, sick of the rocketing cost of iron ore since 2009, thus decided to pull out of the market for nearly a month. Demand slackened and, sure enough, iron ore prices came down. Now, in the third period, China's steelmakers will have wrested a lesser iron-ore contract price from its miner-nemeses,
Above and beyond China's return to the iron-ore importing (rates for the ore-carrying Capesize ships have rebounded some over the last few weeks, approaching $30,000 a day from their July lows of $10,000), Wobensmith said he expects higher demand worldwide for both thermal and coking coal.
Also, Wobensmith said, the Russian climatic catastrophe, which led to the nation's recent ban on the exportation of grains, means those countries that had formerly bought from Russia will need to shop at the North American bread basket instead. The greater travel distances, or "ton miles" in industry jargon, between the U.S. and the Eastern Hemishphere will result in ships being removed from the market for longer than they might otherwise have been, reducing supply and driving up rates.
Wobensmith's Genco, which has been the shipping industry's dealmaking nonpareil this year,
, surpassing estimates and championing the increased cash flow that its 18 new ships will give it going forward.
As always, bullishness prevailed among most executives in the dry-bulk trade, which is largely governed by men with names like Sophocles and Prokopios.
Take Eagle Bulk Shipping. The company appeared to post a bang-up second quarter, with earnings lifted by a March-to-June period during which bulk shipping rates on the spot market enjoyed relative strength.
From June to July, however, rates had collapsed on weaker demand from China, whose steelmaking industry, by far the world's largest, consumes enough iron ore that it can swing the global market for the stuff with every tidbit of news released from the People's Republic.
Eagle had such a good quarter because of its decision, early this year,
, and because of a fleet that's pure Supramax, a class of vessel that specializes in grain hauling and rates for which thus likely to rise as a result of the
In Eagle's earnings release, company boss Sophocles N. Zoullas said, "Going forward, Eagle's Bulk's fleet should continue to benefit from the seasonally strong, end-of-year Supramax trades in grains and coal."
Excel Maritime, which continued to shore up its balance sheet by paying down debt and bringing itself into compliance with its covenants, was
hit in the third-quarter
by higher-than expected maintenance costs. The company has a handful of Capesize ships, the largest dry bulk carriers on the high seas, and is thus dependent on iron ore trade for its financial performance.
The company's CFO, Pavlos Kanellopoulos, said in his prepared second-quarter statement, "We acknowledge the high volatility in the dry bulk market, especially in the Capesize vessels, however, we continue to be optimistic for the medium and long term outlook of the markets in which we operate.''
Notes of concern came from the customary quarter: Diana Shipping. Known for its penchant for conservative outlooks and chartering strategies, Diana has nonetheless stepped out a bit of late, making acquisitions and even expanding into the containership category.
The company's chieftain once again used the pulpit of the quarterly earnings release to pontificate on the dangers that lie at sea, though he sounded slightly more optimistic than in past quarters.
What worries Diana is something that other ship owners appear to have all but forgotten: an oversupply of ships caused by a boom-years spree among companies to order newbuildings.
Said Diana founder's and CEO, Simeon Palios, in the company's press release, "World economies have shown clear signs of sustainable improvement, which should have a positive effect on the demand for carrying dry bulk commodities by sea. However, on the supply side, the industry is witnessing a significant order book of new vessels to be delivered in the next two years, which may create further pressure on charter rates and vessel values."
-- Written by Scott Eden in New York
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