NEW YORK (TheStreet) -- The fourth quarter was kind to dry-bulk shipping companies.
With rates for their services reaching levels not seen since before the crash, dry bulkers will likely post strong profit and cash-flow numbers when they go public with their quarterly results later in February.
Indeed, for a brief moment in October, a few ship owners were lucky enough to book their capesize ships on the spot market for voyages paying $100,000 a day. Though six-figure rates were hardly the norm -- on average across the fourth quarter, capesize vessels scored day rates of about $45,000 on the spot market -- that's still well above the levels indicated by the hedging instruments used by the shipping industry. The derivatives known as forward-freight agreements, or FFAs, had called for average rates in the fourth period of about $35,000 a day.
More to the point: $45,000 is
more than enough for profits to roll in at a fine pace for shipping companies
. Anything above $50,000 is considered historically strong, and enough to drive stock prices higher.
Still, as all dry-bulk investors know, stocks prices in the sector rarely move one way or another based on earnings reports alone. Analysts for the most part have a clear view of how much money each company will make in a given three-month period, since publicly traded shipping outfits, more conservative than their privately held peers, rent out most of their vessels under long-term charter contracts at fixed rates. Private ship owners, ruled largely by magnates in Greece and Norway, are much freer to roll the dice on the spot market.
Quarterly results, therefore, are to some ways of thinking beside the point when it comes to dry-bulk stocks.
Instead, the supply-demand prognosis looms the largest for investors.
On the demand side, everyone is trying to divine whether China's recent credit tightening will slow the blast furnaces of the world's largest steel-producing nation -- and, if so, to what degree. So furiously have those Chinese plants consumed iron ore in their rage to forge steel that, through most of 2009, the People's Republic almost singlehandedly saved the dry-bulk business from the devastation suffered by other merchant-marine sectors, most notably container ships.
Over the short term, the outlook for iron-ore demand looks to remain robust, many analysts say. They base their bullish view on the April deadline for annual negotiations between Chinese steel interests and the world's big three iron ore miners --
( RTP) and
. Because contract prices are expected to jump, China's mills may look to buy up as much iron ore as possible before a deal is struck in April, stocking up when prices remain relatively cheap.
On the other hand, shipping rates weakened sharply during the second half of January, before stabilizing the last few days. Many have attributed the falloff to declining Chinese steel prices, or fewer shipments into China ahead of the national New Year's holiday, but the decline was steep enough to cause broader-based concerns.
On the supply side, the great worry remains the orderbook, which continues to cast a dense shadow over stock prices. Dry bulk observers -- from ship owners to brokers to shareholders -- will be paying attention to dry-bulk earnings reports in at least one significant way: checking to see how many orders for new vessels these companies have scratched, thus reducing future supply. The prevalent feeling is that
But some analysts note that
-- nearly 60 ships have been waiting to pick up coal at the Australian port of Newcastle -- could help soak up the incrementally increasing number of dry-bulk ships on the oceans. Then there's the phenomenon of "ton-mile expansion," which refers to the increasing distances that ships must travel between pick-up and delivery, as South American mines supply more and more raw materials to China, as opposed to Australia.
It's true that dry-bulk shares often move in tandem, since, at bottom, business is the same from company to company. There isn't much brand differentiation, in other words. Still, company specifics do matter. With that in mind,
here's a look at five popular dry-bulk outfits
Genco Shipping & Trading
Navios Maritime Holdings
-- and where they stand as they finish out the first quarter of 2010.
-- Reported by Scott Eden in New York
>>Five Dry-Bulk Stocks to Watch
>>Where Are Dry-Bulk Rates Headed?
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.