NEW YORK (TheStreet) -- It's been a wild few months for the dry-bulk shipping industry, which has suffered as rates for its ocean-bound services have plunged to levels not seen since the depths of the financial crisis in early 2009.

But with most of the sector's publicly traded companies ready to report second-quarter results in the coming days and weeks, it looks as though the market may have bottomed out. Some investors and analysts say dry-bulk stocks have been oversold amid the most-recent rates collapse, and that recent strength in most of these shares indicates a burgeoning bulk-shipper rally.

Baltic Dry Index, 12-Month

Of course, stocks in the sector have risen in the last few sessions along with the broader market. Industry stalwarts DryShips ( DRYS), Diana Shipping ( DSX - Get Report), Genco Shipping & Trading ( GNK - Get Report) and Excel Maritime ( EXM) have all seen their shares come off year lows in recent trading sessions.

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On the spot market, the plunge in day rates for Capesize ships, the biggest bulk carriers on the high seas, was particularly severe. After touching nearly $60,000 a day in early June, Capesize rates began their prolonged sink, not stopping until last week and falling as low as $12,000 a day. The break-even level for these ships is around $8,000 to $10,000 a day, excluding interest costs and the like.

The reasons for the decline are well-known: a kind of supply-demand double whammy developed in early summer. On the supply side, there were two negative factors. Congestion at key iron ore ports in China, Australia and Brazil has eased, unleashing free Capesize ships onto the market. More worrisomely, a steady drip of freshly built ships has continued to increase the size of the overall global dry bulk fleet across ship categories, though the Capesize market has been hurt much more so than smaller vessel classes.

On a deadweight-ton basis, the worldwide fleet has grown by more than 6% since the beginning of the year, according to Clarksons, the London ship broker. The Capesize fleet, meanwhile, has surged by nearly 9%, adding more than 110 ships since the end of 2009. "Only the Capes are being hurt significantly by the supply situation," said Jeffrey Landsberg, an independent dry-bulk industry analyst in New York.

On the demand side, Chinese steelmakers all but stopped importing iron ore. The reasons were two-fold: a slower-growing Chinese economy that was down-shifted by government officials afraid of asset bubbles, and the rising cost of raw materials. Because iron ore prices shot so high earlier in the year, steelmakers began buying domestically produced iron ore, which is cheaper. In June, Chinese mines churned out more of the crucial steel ingredient than they ever had in any month before, the second straight monthly record. Meanwhile, with domestic demand for steel easing back because of the fiscal and monetary moves by the government, steel prices weakened, squeezing margins and forcing steelmakers to reduce outpout.

Claymore/Delta Global Shipping ETF, 3-Month

But market watchers are now predicting a dry bulk turnaround -- not in the third quarter, but in the final period of the year, and perhaps beyond. For one thing, in response to collapsing rates, ship owners may be on the verge of pulling ships off the water in a bid to tighten supply and staunch the weakening trends. Sammy Ofer, the Israel-based shipping magnate who controls the closely held Zodiac Maritime fleet, has reportedly made moves to lay up ships, just as he did in 2009, when rates fell to historic lows.

Furthermore, the new seaborne iron-ore pricing system instituted this past spring, which prices the metal on a quarterly contract rather than an annual one (as it had been for the last 40 years), will likely help shippers in the fourth quarter, market pros say. That's because spot iron-ore prices have declined right along with that weakening steel market in China. Since contracts between the big iron ore suppliers (read: BHP Billiton ( BHP), Rio Tinto ( RTP) and Vale ( VALE)) and their Chinese buyers are based on the average price of the prior quarter, steelmakers will likely take advantage of the discount by acquiring more ore.

According to Omar Nokta, a shipping stock analyst at Dahlman Rose in New York, if iron ore prices average $135 a ton in the third period -- which they're on track to do -- Capesize rates could reach $40,000 to $50,000 a day. "As such," the analyst wrote in a recent research note to clients, "we remain encouraged on the outlook for dry bulk."

Others analysts point to cheap share-price valuations for their optimism. Doug Mavrinac, of Jeffries & Co., said the market may have overdone the selloff in dry bulk names as rates crashed in June and July. Since 2000, he said, share prices in the sector, for all their massive volatility, have traded at an average eight-times forward EBITDA as a group. Based on average Capesize day rates of $33,000 a day in 2011 -- a somewhat conservative estimate -- stocks in the shipping peer group are now trading at just six times estimated EBITDA for next year, Mavrinac said.

He cautioned, however, that the Baltic Dry Index, which tracks freight rates across ship classes, has remained "range bound." Because dry bulk stocks have a long history of following the BDI, going long dry bulk could be "tricky" over the medium term. If the index doesn't begin to rise, "it will make some of these stocks difficult to work," Mavrinac said.
In the end, dry bulk shippers will be prey to these forces to greater and lesser degrees as they progress through this earnings season and the rest of the year. Click on for a closer look at five dry-bulk stocks that will demand to be watched....

Diana Shipping

Earnings Date: Aug. 5, before the bell.

Wall Street Consensus EPS estimate: 41 cents

Year-Ago EPS: 39 cents

Key Themes: Diana Shipping, with its reputation for stability, sobriety, probity and virtue, has been like a prudish chaperone among the partiers in the otherwise rowdy dry-bulk sector. And once again, market watchers expect another quarter of earnings stability out of Diana, which has almost the whole of its fleet locked into long-term charters for this year and next.

The downside to Diana's conservative chartering strategy is well known: The company and its share price don't participate to the upside as strongly as its peers during moments of rising spot rates. On the other hand, when rates crater, as they have since June, investors are generally thankful for the cautious approach by CEO Simeon Palios and his crew in Athens. Market watchers expect the company to give another cautious outlook on the state of the industry when it reports second quarter results, as is its wont, which may put a damper on the company's shares in the very short term.

But, further into the future, Diana could excite investors; the company has perhaps strayed from its conservative path in at least one way. Levering up, the company has taken on several hundred million dollars in debt, where once it had none.

Diana's fleet expansion strategy has been viewed as wily. Whatever upside the company has capped because of its conservative chartering, it aims to capture in the form of fleet growth, noted Credit Suisse analyst Greg Lewis in a recent report. Lewis, who rates Diana's stock at outperform, expects the company's fleet to grow by as much as 40% over the next six months to a year and a half, both through acquisitions of older second-hand vessels as well as newbuilding contracts.

DryShips

Earnings Date: July 28, after the bell.

Wall Street EPS Estimate: 22 cents.

Year-Ago EPS: 21 cents.

Key Themes: DryShips is the dry-bulk shipping company that's no longer a dry-bulk shipping company, at least when it comes to how investors and analysts increasingly view its stock.

That's because DryShips' effort to enter the deepwater oil drilling racket has faced so many problems and created such an overhang over its shares that the company's dry bulk fleet has, for all intents and purposes, become irrelevant to its stock-price movement. For more than a year, the company has chosen to take an ultra-conservative chartering strategy, locking all of its vessels into long term contracts for zero spot-market exposure.

Meanwhile, on the underwater energy side, the company continues to lack financing for two of the drillships it has on order at the Samsung shipyard in South Korea, and still lacks the two charter contracts it requires in order to obtain that financing.

This share-dragging situation has been the status quo for nearly a year. According to recent industry scuttlebutt, DryShips may be considering a junk-bond offering in order to raise at least a portion of the cash it needs.

Here's another development to file in the unhelpful category: last week, the CEO of the drillships business, David Mullen, left the company -- DryShips execs had long trumpeted its drillships personnel as highly experienced and crucial to the success of the unit.

Greg Lewis, who downgraded DryShips because of the drilling business uncertainty in June, remains bearish on the company. He rates the stock at neutral and wrote in a research note recently, "Unfortunately, we believe the key driver to push the stock higher is a rig employment on any of its four newbuilding drillships, and we place the probability of such an announcement as low."

Eagle Bulk Shipping

Earnings Date: Aug. 5, before the bell.

Wall Street EPS Estimate: 10 cents.

Year-Ago EPS: 26 cents.

Key Themes: Eagle Bulk Shipping ( EGLE - Get Report), compared to other publicly traded shipowners, has a homogenous fleet. It mostly runs Supramax-sized ships, which specialize in hauling coal, though often these ships are used to take iron ore into and out of India, which doesn't have ports large enough to handle Capesize ore carriers.

To the delight of Sophocles -- Sophocles Zoullas, that is, Eagle Bulk's chief executive -- rates for Surpramax ships haven't declined nearly as much as their giant Capesize cousins. The going daily price to rent this class of vessel on the spot market has ranged between $17,000 to $19,000 amid the June-July route in dry-bulk rates, only about 20% below year-ago levels. Compare that to the Capesize market, where day rates have plunged to nearly $12,000, down almost 80% from last summer.

Why the Supra strength? Just like the Northeastern and Mid-Atlantic U.S., much of China has undergone a sickening heat wave over the last month or so. Combined with dry conditions that have reduced the nation's ability to tap its hydro-power plants, China has imported a lot of thermal coal -- the type that's used to fuel electrical generation. Furthermore, the India trade has remained strong throughout the summer.

For Eagle, that means a relatively insulated cash flow; the company also increased its exposure to the spot market at the end of 2009 and beginning of 2010, taking advantage of then-strength in shipping rates. That's good news for Eagle in other ways as well: the company, like many dry bulkers, loaded up on debt during the pre-crash boom times in order to expand its fleet. It's been able to steadily reduce that leverage.

Excel Maritime

Earnings Date: Aug. 4, before the bell.

Wall Street EPS Estimate: 15 cents.

Year-Ago EPS: 2-cent loss.

Key Themes: The story for Excel Maritime ( EXM) is similar to Eagle, in at least one way: debt reduction. Not so long ago, investors were worried about the very solvency of the Athens-based group. The song here is the same, too: a big boom-time acquisition -- Excel bought Quintana Maritime at the absolute height of the market -- caused the company to list under a seriously overburdened balance sheet.

But stable cash flows have allowed the company to cut its debt load by $400 million from its peak in the second quarter of 2008, when it carried some $1.65 billion in debt, according to Jeffries analyst Douglas Mavrinac, who rates the stock a buy. "They've been quietly but quickly strengthening their balance sheet," he says. With a debt-to-capitalization ratio of 44%, Excel is on track to reduce that number to 30% -- a healthy ratio for the dry-bulk sector -- by the end of 2011.

Another thing for Excel investors to cheer: Last quarter, the company finally made the decision to split out some accounting oddities from its operating results, offering a clearer picture of its business.

Genco Shipping & Trading

Earnings Date: TBA.

Wall Street EPS Estimate: $1.10.

Year-Ago EPS: $1.20.

Key Themes: One of the several companies founded and operated by the shipping impresario Peter Georgiopoulos -- or "Peter G" as he's sometimes known -- Genco announced one of the biggest deals in the dry-bulk business in years in June. The company agreed to acquire 16 ships for about $550 million from Georgiopoulos friend Theodore Angelopoulos, boss of the privately held Greek shipping company Metrostar.

(As part of the deal, Genco also agreed to turn around and sell three of those ships to Peter G's privately held fleet -- such is the way, deal upon deal struck between related entities, of the shipping business.)

Genco then sold $160 million in stock, partly to fund that acquisition. The moves are seen as risky. It's as if Peter G. is buying a call option, betting on a steep rally in dry-bulk day rates.

Sell-side stock analysts, almost all of whom are bullish on the industry at large, are by and large bullish on Genco as well. The company also has some of the most significant exposure to the spot market among its publicly traded peers. (Private shipowners generally have far more ships on the spot market than public companies.) As Greg Lewis said recently in an industry note, Genco "has solidified itself as a leveraged play against the BDI."

In other words, Genco stock will track the BDI by an order of magnitude in either direction much more than other names in the sector.

-- 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.