A turning point of US coal stocks and dry bulk shipping?

Due to the glut of natural gas and environmentalist pressure, the domestic demand for coal has been depressed. US coal producers are looking abroad.

From Marketwatch

"The U.S. Energy Information Administration estimates 2011 exports surpassed 100 million short tons for the first time since 1992, and some market watchers expect exports to top that this year. ....................................

Higher sales prices in Asia and Europe have made sending coal to those markets more attractive, while U.S. emissions regulations and competition from cheap natural gas limit domestic demand.

Fast-growing China and India have been sucking up shipments to fuel an expansion of coal-fired power plants, disrupting traditional supply channels. South Africa -- a traditional exporter to Europe -- has been sending more shipments to Asia, creating a hole in the market that the U.S. has helped fill. "

The US coal exports could eventually hit a ceiling, as transportation costs will make U.S.-produced coal less competitively priced than coal produced closer to major Asian customers. However, shipping rates that are hovering around historic lows can help US coal exports. Meanwhile, dry bulk shipping that has been abysmal amidst a gigantic glut of ships may get a lift from increased coal transportation across the ocean.

Watch lists:
Coal- ACI, ANR, BTU, CNX, PCX
Dry Bulk Shipping- DRYS, DSX, EGLE, EXM, SB, NM

Disclaimer: I have no position of the above mentioned stocks in my personal account as of 2/6/2012. However, I may have distributed the information to friends, family and affiliates prior to the post. My friends, family and business affiliates may have positions in stocks I mention.

BDI surging to 4000

Baltic Dry Index (BDI) , a measure of dry bulk shipping spot rate, surged 206 points yesterday , bringing the index to 3954. As we have previously discussed in " Dry Bulk Shipping Ready to Sale? " Iron ore negotiations and China growth are two drivers of the surge. COSCO analyst predicted that BDI would reach 4000 before the end of the year. Today certainly made him look like a genius.

The current index of three types of ships: Capeside, Panamax, Supramax stand at 67385, 30430 and 21129 respectively, significantly higher than the "dark age"  a year ago at 4193, 6912, and 5580 respectively. [Click on the diagram to enlarge the view]

The global economic recovery led by emerging markets such as China has definitely lifted the tide but the spot rates are still abysmal compared to its peak in 2008 when Capeside rates could fetch as high as approximately 230,000, a little less than 4 times yesterday's rate. All dry bulk shipping companies, in face of adverse and precipitous economic meltdown, dashed to raise fund by issuing new shares to avert bankruptcy.  Most of the companies had their equity diluted to such an extent that the level of spot rate that yielded jaw-dropping profits in the past will have to go a much longer way in producing the same results.

Another dark cloud that has been overshadowing the industry is the potential huge glut of new ships coming online by 2011.

According to N Cotzias Shipping, the capsize market at the end of September consists of 825 ships of a total of 149 million tonnes carrying capacity. The average age of fleet is 10.6 years.Based on its latest monthly report, N Cotzias said that just 16 capes of 2.8 million tonnes DWT have been scrapped. At the same time, the projected contracted and already under construction vessels that will enter the market until 2016 are 736 units of a total 144 million DWT. Out of these new buildings 429 units, or 80 million DWT are to enter the market by the end of 2010. Until today we only have 25 new buildings capes cancelled of which 9 were to be delivered in 2009 and 12 in 2010.This is a mere 5% only of the total of new ship orders.

Based on this assumption, Cotzias said that that "If we scrap only 2% of the total active fleet and if we cancel only 5% of the total orders, we are mathematically driven to expect that the Capsize market is head on to be over capacitated by 90% to 95% if all current trends prevail during remaining 2009 and 2010."

I remain short-term speculatively bullish in this sector due to near term catalysts such as favorable asset market sentiments, especially to commodities, imminent iron ore negotiations and continued growth in China. For longer term, uncertainty surrounding the sustainability and strength of global growth together with the upcoming glut in ships still have not offered attractive reward/risk profile for this industry.

Baltic Dry Bulk Index Rising Tide?

In a previous post "Dry Bulk Shipping Ready to Sail", COSCO analyst cited a few reasons to be optimistic in the sector by the end of this year. In the mean time, the once-popular Baltic Dry Bulk Index (BDI) has bulked weeks of downward trend since late September. Is this just a coincidence or it is indeed a year end party for stocks like DRYS, DSX, NM, etc?

Below is a snapshot of the BDI in the last month:

 Oct 07, 2009  2546.00
 Oct 06, 2009  2441.00
 Oct 05, 2009  2362.00
 Oct 02, 2009  2357.00
 Oct 01, 2009  2284.00
 Sep 30, 2009  2220.00
 Sep 29, 2009  2185.00
 Sep 28, 2009  2192.00
 Sep 25, 2009  2183.00
 Sep 24, 2009  2163.00
 Sep 23, 2009  2175.00
 Sep 22, 2009  2246.00
 Sep 21, 2009  2318.00
 Sep 18, 2009  2356.00
 Sep 17, 2009  2390.00
 Sep 16, 2009  2415.00
 Sep 15, 2009  2431.00
 Sep 14, 2009  2450.00
 Sep 11, 2009  2468.00
 Sep 09, 2009  2491.00
 Sep 08, 2009  2462.00
 Sep 07, 2009  2429.00

Disclaimer: Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author owns DRYS in her personal account as of October 7,2009

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Dry Bulk Shipping Ready to Sail?

In a Bloomberg report on September 29 " Baltic Dry to Jump on Chinese Demand, Cosco Says" :

"The Baltic Dry Index, the main measure of shipping costs for commodities, may surge more than 80 percent by the end of the year on increased demand for shipments to China, according to China Ocean Shipping (Group) Co.

The gauge may rebound to 4,000 points as local governments encourage factory output, especially of steel, Kong Fanhua, a senior researcher at the company, said in an interview. “If you believe in a China story, believe in a recovery in the shipping market,” Kong said today. The index ended yesterday at 2,192."

Iron ore negotiations and seasonality in coal consumption were cited as drivers of shipping in the fourth quarter:

"Iron ore is the biggest dry-bulk cargo moved by sea, and China is the top consumer of the steelmaking material. The Baltic Dry Index, regarded by some investors as a proxy for shifts in global commodity demand, peaked this year at 4,291 in June as China’s stimulus package revived demand.

Talks on contract iron prices for next year between suppliers and Chinese mills may drive vessel bookings, Kong said in Singapore, where he’s attending an industry conference. The fourth quarter is also the “traditional high season” for coal consumption, which should boost the shipping trade, he said. "

China, as usual, was cited as the key to this expected rebounce in dry bulk shipping:

"“China’s government can’t stop the current policy of expansion,” said Kong. State-held China Ocean Shipping owns the world’s largest operator of dry-bulk ships. “It’s just like driving a car on a mountain: if you stop in the middle of the mountain, you’ll slide down backward.”

Premier Wen Jiabao said on Sept. 10 that China “cannot and will not change” policies, signaling that he will maintain the unprecedented government spending. The country is in a “critical phase” of ensuring economic growth, China National Radio reported Sept. 18, citing the Fourth Plenary Session of the 17th Communist Party of China Central Committee.

China will expand 8.2 percent this year, compared with a March forecast of 7 percent, the Asian Development Bank said last week, helping to ease concern that the nation may slow raw- material imports. A recent slowdown in imports was related to seasonality, Kong said

Kong echoed the view by Glenn Maguire, chief Asia-Pacific economist with Societe Generale SA, who said earlier this month that China’s inland projects to build more roads, railways and warehouses will continue to fuel demand for commodities.

China’s gross domestic product grew 7.9 percent in the second quarter, up from 6.1 percent in the three months through March. GDP growth slowed to 9 percent last year from 13 percent in 2007. The nation’s 4 trillion yuan ($586 billion) stimulus plan, announced in November last year, runs through 2010. "

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