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Baltic Dry Index-No material signs of economic recovery

Posted by smeddum on September 13, 2009

Dry Bulk Shippers’ Shares Treading Water After Earlier Rise

By David Benoit

SEPTEMBER 11, 2009

WSJ online

NEW YORK (Dow Jones)–Dry bulk shippers were in choppy trading seas on Friday, starting the day speeding right along with commodity stocks, before pulling back on the throttle and drifting along just slightly higher, with some stocks sinking into the red.

DryShips Inc. (DRYS) rose 4.2% to $6.70 in recent trading after earlier rising as much as 8.6% to its highest point in more than a month. Star Bulk Carriers Corp. (SBLK) was up 4.3% to $3.67 recently after topping out at $3.71, while Eagle Bulk Shipping Inc. (EGLE), which had gained 6.5% at one point, was up 1.5% at $5.38. Genco Shipping & Trading Ltd. (GNK) had risen 4.1% before falling back, recently trading down 1.1% to $21.77.

The day started with China announcing that its industrial output rose 12.3% in August from a year earlier, increasing July’s 10.8% gain, the National Bureau of Statistics said. It was the fourth month in a row of acceleration, and a boost to worldwide hopes that government stimuli are turning around economies.

That helped drive some earlier gains in commodities and industrial companies, which were among the best-performing stocks on the day. Rises in commodity demand and industrial output have largely also led to increases in shares of dry bulk shippers.

The industry is seen as being one that will rise early in an economic rebound, based on the assumption that before the industrial world can light up its factories or crank out their goods, they will need the raw materials mostly delivered by dry bulk’s giant ships.

Jefferies analyst Douglas Mavrinac said the theory has led to a disconnect in shares lately.

“There is a little bit of the battle between expectations and what’s taking place in the market today,” Mavrinac said. “The expectations are, with the global economy improving, there will be more demand for those commodities. The only thing is we haven’t seen a material improvement yet.”

Fresh off a Jefferies shipping conference this week, Mavrinac says the consensus mood of the companies was bullish, but cautioned that improvement in commodity prices and activity can, counterintuitively, hurt the shippers. As iron ore prices increase, for instance, China and others restart their own mines and decrease the demand for imports.

The disconnect between hopes and reality is best seen in the Baltic Dry Index, which measures the activity in the shipping world and typically steers the shippers. The index was down slightly Friday, losing 0.92% after a string of small gains, according to Capital Link Shipping. As a whole this week it has risen 1.6%, but over the past three months has rarely seen big moves, instead undulating slightly up and down, though it’s off 29% over the total three months.

Cantor Fitzgerald analyst Natasha Boyden said the index has been particularly hurt by the iron-ore import rates, and pointed out that Friday’s early rise in stocks was surprising given there was little fundamental reason for it.

“All the pointers, industrywise, are fairly negative,” Boyden said. “I would say at the moment fundamentals are not that strong. The stocks are getting a little bit ahead of themselves.”

-By David Benoit, Dow Jones Newswires; 212-416-2458;;

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