Baltic, Genco Expect Chinese Steel Uptick

NEW YORK ( TheStreet) -- Shares of Baltic Trading ( BALT) were rising on Wednesday after the dry bulk shipper reported a narrower-than-expected loss and as the overall industry begins to see a rebound in Chinese steel production.

Shares of the New York-based company were at $5.52, up 9 cents, or 1.7% on Wednesday as Baltic reported on Tuesday a third-quarter net loss of $195,000, or 1 cent a share, on revenue of $10.9 million. Analyst estimates as polled by Thomson Reuters expected a loss of 2 cents a share.

"Early indications of decreasing steel inventories over the last week could result in higher steel prices and a possible rebound of steel production in the short run," Baltic Chairman Peter Georgiopoulos said on a conference call Wednesday.

Genco Shipping & Trading ( GNK) also reported earnings Tuesday and beat expectations on the top and bottom line. But a positive third quarter didn't prevent shares of the company from sliding on Wednesday.

Genco was falling on Wednesday to $8.75, down 22 cents, or 2.5%, after it showed a profit of 4 cents a share on $93.5 million in revenue. Analysts expected Genco to break even on $92.8 million in revenue.

"Our opportunistic time charter approach enabled Genco to capitalize on a rising freight rate environment during the third quarter," said Robert Gerald Buchanan, president of Genco, in a statement. "We continue to employ a majority of our vessels on contracts that preserve the ability to take advantage of future rate increases."

With the prospect of a rebound in Chinese steel production , Genco and Baltic could be singing.

The Baltic Dry Index, which measures commodity shipping costs, has dropped in the past few days because of a decrease in capesize rates as Chinese steel stockpiles increased in the eight weeks leading up to the beginning of October.

The increase, however, eventually outpaced domestic demand, forcing Chinese steel producers to cut production and slowing the need for iron ore. But now it looks like a reduction in production has eliminated surplus stockpiles, meaning China could soon be firing up steel production again.

"Normally if there's a lot of momentum in the market, it's going to take a few days to really see an impact on the freight rates, but if Chinese steel stockpiles continue to decrease, China will eventually have to increase its steel production -- and that will increase their demand for iron ore," said Jeffrey Landsberg, a dry bulk industry expert at Commodore Research.

China is the single-largest global importer of iron ore, and a bump in shipments would mean more better capesize business for Genco and Baltic, and other shippers who rely on spot freight rates.

The current daily rate for capesize ships is $25,298, which is off a recent high of $30,000, but still above the $20,000 rate needed to operate above costs.

Landsberg said that in early September (which he refers to as "better times") roughly 25 capesize ships were chartered each week to transport iron ore to China. Over the last two weeks, however, only 11 vessels were chartered each week to haul iron ore to the country.

This trend already has started to shift.

"If you look at this week -- meaning Monday and Tuesday -- so far in the first two days of this week, nine vessels have already been chartered to haul iron ore to China," Landsberg said. "So there very well could be a light at the end of this tunnel."

Stocks in the volatile sector could use the lift. DryShips ( DRYS) is off more than 45% so far this year; Eagle Bulk Shipping ( EGLE) is down nearly 70%; Excel Maritime Carriers ( EXM) has lost more than 47%; Genco has dropped 37%.

"Additional demand for iron ore is expected to come not only from increased steel production in China, but also from rebounding steel production in the rest of the world," Peter Georgiopoulos said.

-- Written by Joe Deaux in New York.

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