NEW YORK ( TheStreet) -- Sentiment appears to have turned bullish among sell-side stock analysts who follow the dry-bulk shipping trade.
Iron ore is the reason.
That's because, as widely expected, the benchmark price of seaborne iron ore for the fourth quarter will probably be around 10% less than it was in the third quarter, according to indications from the big three iron ore miners, Vale (VALE), BHP Billiton ( BHP) and Rio Tinto ( RTP). That means Chinese steelmakers, emboldened by the drop, may have reason to increase their iron ore purchases during the fourth quarter, which in turn will mean a greater need for the enormous ships that move all that ore from Australia to China and from Brazil to China. As shippers' profit-making prospects rise for the near term, so too will their stocks. At least, that's the theory. "We believe the dry bulk shipping market could be set up for a nice surge in both charter activity and spot charter rates in the coming months," Doug Mavrinac, of Jeffries & Co., wrote in a note to clients. Omar Nokta, of Dahlman Rose, says steel prices in China need to strengthen a bit before steelmakers there can fully "take advantage of the seaborne iron ore discount." A rebound in bulk-freight rates would continue an overall strengthening trend in August, which follows a severe collapse in June-July, when rates on the spot market for bulker carriers, especially the iron-ore hauling Capesize vessels, plunged to levels not seen since the financial crisis.