Dry Bulk Sector Update
BANGALORE, Jan 31 (Reuters) - Demand for dry bulk shipments will remain strong this year despite a recent crash in freight rates, growing fears of a U.S. recession, a weak dollar and high oil prices, chief executives of four major dry bulk carriers said at an industry forum on Wednesday.
Demand from China and other emerging economies will offset falling freight rates, the CEOs of DryShips Inc (DRYS.O: Quote, Profile, Research), Star Bulk Carriers Corp SBLK.O, TBS International (TBSI.O: Quote, Profile, Research) and Quintana Maritime Ltd (QMAR.O: Quote, Profile, Research) said at the Dry Bulk CEO Virtual Forum.
The Baltic Exchange's chief sea freight index for dry commodities .BADI, which monitors major trade routes for coal, iron ore, cement and soft commodities such as grain and sugar, lost about 47 percent, since hitting a life high of 11,039 in November last year.
George Economou of DryShips said the profitability would not be affected due to recent fall in freight rates.
"On average, a capesize vessel would be getting $90,000 a day and the expense is about $6,000 a day and there is a huge margin" he added.
Dry bulk freight rates had touched record highs last year, reaching $200,000 levels for capesize vessels, on strong demand from China and other emerging economies and also due to tight supply of vessels.
Quintana's Chief Executive Stamatis Molaris said Baltic Dry Freight Index is an indicator of spot rates only and does not reveal the future freight rate movements.
"It has nothing to do with the real and underlying fundamentals of our business in the long term and volatilities is also part of dry bulk business in the long term," he said.
Molaris also emphasized there is no change in the fundamentals and investors should not use the index to draw long-term conclusions but could use it as a short term trading instrument.
"The fundamentals are still good for 2008, 2009 and beyond and you will see new routes developing," Economou of DryShips said.
"Even if the U.S. economy slows down significantly we are not likely to see much effects in our business," Quintana's Molaris said at the conference organized by New York-based investor relations and financial communications firm Capital Link and Nasdaq International.
Besides recessionary fears, dry bulk freight rates have been hit this year by a lack of fresh cargo supply at two key global export centers and China's ongoing price negotiations for iron ore.
"The demand has been surprising us favourably in the past and we will see it again, said Chief Executive Akis Tsirigakis of Star Bulk.
OIL, DOLLAR AND SUB-PRIME
The belief that rising oil prices can eat into a shipper's margins was dispelled by Tsirigakis, who clarified that oil is not part of a shipper's cost structure.
"The oil costs are passed on to the charterers and is not part of our cost structure and hence it do not affect us," he said.
Joseph Royce of TBS International said he is continuing to see increasing exports, especially of coal and agricultural products, from the U.S., as they become cheaper due to a weaker dollar.
Royce also added that infrastructure development, which in turn propels demand for dry bulk commodities like iron ore and coal, would continue as project business is booming throughout the world.
Economou of DryShips said the sub-prime mortage-led credit crunch has not affected the companies' operations.
"The only way we are suffering from credit crunch is in the price of the stocks, which has been unnecessarily hurt.
"The fundamentals have not changed and deals are going to be there and you saw one announced yesterday," he said, refering to Excel Maritime Carriers Ltd (EXM.N: Quote, Profile, Research) $2.45 billion buyout of Quintana Maritime.
Quintana's Molaris said his company's sale to Excel Maritime is a huge confidence booster to the shipping market and that right projects will always be financed.
VESSEL SUPPLY
Dry bulk carriers have ordered more ships to meet the growing demand to ship dry bulk commodities to China, India and other emerging economies, which is expected to hit the seas in the next two to three years.
Molaris said the rise in the orderbook to build new ships was spurred by the booming demand and admitted he was sceptical about the rising supply of ships but added that shipyards are constrained with orders.
"We are currently experiencing delays in delivering ships on time from well established shipyards," he said.
Holding DRYS in my ASTRA portfolio
Comments: View Comments | Thursday January 31, 2008 | Stocks: DRYS, EXM, QMAR, SBLK, TBSI,
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Archive Comments (4)
Armin.
I saw a Blurb about China being 'Snoed-In' in the Chinese InLand. The Trains from the Interior Coal Mines are delayed and can't deliver coal to the Industrial Coast.
If China Imports more Coal than planned, they will have to pay BIG Yuan ( actually RenMimby, not so ? ) on the SPOT Market to Coal Brokers
& Shippers.
How would that fit into your DRY BULK calculus ???
Also. What about Retro-fits --- converting old-style single-Hull VLCC's ( Very Large Crude Carriers ) into VERY LARGE BULK CARRIERS ( VLBC's ). That could be done very quickly and ther are 80 of them to do.
Also, there are 4 or 5 "Blank Check" Capital Pools already set-up who are at least promising to get into the shipping business when they "Make the Move" into operating or Holding Companies. There may be some more acquisitions, mergers, or Take-Overs coming up the SHIP Bizz.
What about "People Cargo" outfits. CCl - Carnival Cruise LInes is in the middle of it's High Season ( winter cruises to the Balmy Caribbean ) and the stock is starting to move UP in anticipation of CCL's next Earnings Report.
Comments, Suggestions, Corrections : Please
RoiRRawGnikIV
Posted by don ferk January 31, 2008 2:17 PM
Astuk, Armin my friend very nice reply about opportunity ,children and investing. So many miss that boat !!!!!! What a wonderful thing you can teach a child --getting an education and learning to invest in tomorrow the future. Great big 100 year old oak trees start as acorn !!!
Do you think that guy with a real funny name who just commented would know that ?? I'll use one of our friends terms NOT SO
Cheers, DuffBeer
Should I drink the beer or invest in the beer company !!!!
tuff decision ,I'll do as VW would --- do both
Posted by duffbeer January 31, 2008 9:11 PM
.... . .-.. --- friends!
Fast telegraphic, almost Morse code reply!
Don,
Latest update on dry bulk shipping really mirrors all aspects of this industry. I would rely on it!
All that story about converting old to new has been going on for many years and don't think that anything revolutionary will happen there. Think about old engines in there!You need to replace almost everything and risk that vessel is not welcomed in many port around the world because is scrap or polluting around. New ones get higher freights and pay less for insurance. Today you need in shipping new reliable fleet.
People cargo: Actually I don't follow that sector, I prefer simple businesses like dry bulkers etc.
DuffBeer,
I guess you loved Opportunity Ahead?/Parents' Pessimism Affects Children's Investing post on Marketocracy forums! Very special article about !People usually tend to think the opposite is the true.
-.-. .... . . .-. ...
Cheers!
Armin
Posted by astuk February 1, 2008 8:45 AM
Armin,
The Stock Market sells two things 1) Dreams & 2) Stories.
To you it's an OLD STORY = to the great Unwashed it's a NEW STORY.
Mr. Market just might 'Market' a story like that - to the RUBES after SmartMoney gets in 1st.
I say, " When the Story conflicts with the Facts, TELL THE STORY ".
Now, onto DuffBeer ( [sigh], [Sigh], [SIGH] )
DUFFER,
It's RV now - like I retired from SLO and neeed a Recreational Vehicle like a Moronic FOIL to Occupy &/or Waste my time now.
Maybe you shouldn't drink any more beer ( or any less, eitherfor that matter ). your Liver, kidneys & Mother-in-law would really appreciate that.
NOT so ????????
Invest in BEER, Duff, it's more lucrative & almost as much fun. ToWit :
Beer sales lift Anheuser-Busch profit
February 1, 2008 3:35 AM ET
All Associated Press news
ST. LOUIS (AP)
- Resurgent beer sales helped lift Anheuser-Busch's profit 12 percent in the fourth quarter, but the brewer warned Thursday that rising costs could eat into earnings this year.
The maker of Budweiser and Bud Light said it earned $214 million, or 29 cents per share, in the three months ended Dec. 31, up from $191 million, or 25 cents, in the same period in 2006.
Net sales rose 8 percent to $3.7 billion after excise taxes were deducted.
Analysts polled by Thomson Financial had expected earnings per share of 32 cents.
Shares of Anheuser-Busch, the nation's largest brewer, dropped 76 cents, or 1.6 percent, to $46.50 Thursday.
Revenue at its U.S. beer segment rose 3 percent during the fourth quarter, while international revenue jumped 4.7 percent.
For the full year, Anheuser-Busch reported a profit of $2.12 billion, or $2.79 a share, up from $1.97 billion, or $2.53, in 2006. Net sales for the year rose 6 percent to $16.7 billion.
While the sales climbed overall in 2007, Anheuser-Busch's core brands of Budweiser and Bud Light continue to lag, said Benj Steinman, publisher of Beer Marketer's Insights. Growing overseas sales and revenues from imports that Anheuser-Busch distributes are the only forces driving up sales, he said.
"The consumer preferences are seemingly shifting to craft beers and, to a lesser extent, imports," Steinman said.
Anheuser-Busch plans to boost sales of those brands through a media blitz that will be unveiled in coming weeks, along with a 40 percent increase in the company's sales force, Chief Financial Officer W. Randolph Baker told investors during a conference call.
"For 2008, our clear top priority is to accelerate our core product sales and profitability," Baker said.
The company also will tighten its belt to fight cost increases, Baker said. Rising grain and other commodity expenses are expected to raise the cost of making a barrel of beer by 3 percent to 3.5 percent during 2008. Meanwhile, revenue per barrel is expected to climb between 2.5 percent to 3 percent, he said.
The company is hoping to find savings by improving its supply chain and holding down administrative costs, he said.
___
On the Net:
Anheuser-Busch Cos.: http://www.anheuser-busch.com
For SuperBowl Sunday I want to invest in Buffalo Chicken Wings..........
I'm looking for a good home for a very large FLOCK of quadraplegic Fowls that I just happen to have on hand. Any Ideas ?????
RoiRRawGnikIV
Posted by don ferk February 2, 2008 4:43 PM