(Updated to include closing stocks prices throughout, as well as background on the dry-bulk shipping sector.)
NEW YORK (
) -- Shares of dry-bulk shipping concerns advanced sharply Wednesday, gathering steam near the end of the session, as daily rates for their services continued to strengthen, pushed higher by China's demand for raw materials.
The going fee for a capesize vessel on the spot market, according to London's Baltic Exchange, the ship broker, jumped 4.6% to $67,385 Wednesday. That's down sharply from the more than $90,000 per day that these humongous ore haulers were fetching in July, but is still more than double the going rate of just two months ago. The Baltic Dry Index, which tracks the daily changes in rates for all sizes of drybulk carrier, from capesize on down, rose 3.7% Wednesday to 3,748.
The reason for the shipping-rates rally? The Chinese, of course, whose mills continue to churn out steel at a near-record pace. In October, according to data released by China's government Wednesday, the Chinese steel industry produced 1.67 million metric tons of the stuff per day, up 44% from the same period a year ago.
Iron-ore imports, meanwhile, jumped 50% in October compared with a year ago, though the level did decline by about 30% from September's brisk pace. Nonetheless, with the world's third-largest economy growing, observers feel that ore imports will remain robust over the next month or so, especially as steel mills draw down further on the enormous ore stockpiles accumulated during a raw-materials buying binge in the spring and early summer of this year.
Further evidence of the increasing demand for ore cargo space came Wednesday morning, when two capsizes were booked for routes between Australia and China at a rate of $17.50 a ton, up from $16.50 on Tuesday.
The apparent strength of China's industrial production has, for the moment at least, overshadowed the looming worry of just about every shipping pro: that fleets of newbuildings put on order back before the crash will soon come into service, creating a glut.
The recent increase in spot rates for dry-bulk carriers highlights the inherent volatility of the spot market, as well as the high-beta shares of shipping companies themselves. (Many traders, of course, use these issues as momentum plays.) Not three weeks ago, spot rates were softening, and -- along with a broad selloff in commodities -- this helped weigh on stocks in the dry-bulk sector, sending them southward by a similar percentage to Wednesday's gains.
Meanwhile, third-quarter financial reports continue to emerge from the sector, with
both turning in results this week that topped Wall Street targets.
Diana appears to remain one of the more impressive names in the sector, with a balance sheet that can support as many as four capesize purchases without using any debt at all, says Omar Nokta, an analyst at the boutique New York investment bank Dahlman Rose, in a note to clients. Nokta, however, expects Diana to use 50/50 leverage to buy eight ships by the end of 2010. Almost all sell-side analysts have the equivalent of a buy rating on Diana shares. The lone holdout is Anders Rosenlund, of the Norwegian investment bank ABG Sundal Collier, who rates Diana's stock at sell.
Paragon, meanwhile, also posted a better-than-expected profit, as interest expenses and operating costs came in lower than analysts were generally anticipating -- a common theme this earnings season. The same efficiency and declining interest expense helped Diana as well as
Genco Shipping & Trading
exceed Wall Street targets for their third quarters.
Still, Paragon has been called the most conservative shipper when it comes to its exposure to the volatile spot market. That is, it has none: 100% of its fleet is locked into long-term charters for 2010. Should the spot market continue to jump, however, Paragon will miss out, and so may its stock value, worries Dahlman's Nokta.
One of the more aggressive when it comes to spot-market exposure has been Genco, which has put 25% of its fleet on the spot market for the remainder 2009. That means that it stands to gain a bit from the recent firming in rates.
Genco shares led the sector higher Wednesday, closing the regular session up 14.7% at $23.76. Volume totalled about 5 million shares, more than triple the daily average turnover in the name.
Elsewhere, shares of Diana jumped 10.7% to $15.93;
advanced 7.7% to $5.75; DryShips rose 8.5% to $6.77; and Paragon gained 5% to $4.68.
also surged during the session. Last week, the company added itself to the third-quarter trend, beating profit forecasts by three pennies when it reported per-share earnings of 6 cents. Wednesday afternoon, its shares leapt 16.7% to $5.66.
Through most of Wednesday's session, about the only dry-bulk stock that was losing ground was
( TBSI), a Bermuda-based shipper that operates smaller vessels, mostly handymax and handysize. But its shares staged a late rally, closing Wednesday at $7.73, up 3%. The company, which reported its third-quarter on Monday, swung to a loss during the period, posting red ink of $18 million, or 61 cents a share.
-- Written by Scott Eden in New York
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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining TheStreet.com, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.