BDI, Indian shipping stocks out of sync with each other

The Baltic Dry Index has been on the upside over the past few days on the increase in demand for Capesize vessels. On the other hand, Indian shipping stocks have not been in tune with the Index

The Baltic Dry Index (BDI) has been on an upward trend over the past two months. The Index moved up by 11% over the past two months. However, Indian shipping stocks have not been on a similar upward trend.

The BDI has moved from 3,242 points on 5 March 2010 to 3,608 points on 7 May 2010, a positive change of 11%. However, Indian shipping stocks are not in tune with the shipping index movement. The Moneylife shipping index witnessed a change of -1% for the period of 8th March-7th May. 

Stock prices of shipping companies (for 30th March-7th May) have moved in the following fashion: Great Eastern Shipping Co Ltd (-1%), Mercator Lines (-15%), Shipping Corporation of India (7%), Shreyas Shipping (7%) and Varun Shipping
(-7%).

Analysts say that the main reason for this anomaly between the Indian shipping industry’s stock prices and the BDI is the concentration of the Index on Capesize vessels. “The BDI is basically dominated by the Capesize index, with the Supramax, Panamax and Handymax indices playing a comparatively small role.

The Capesize index is moving upwards—the Panamax, Supramax and Handymax indices are currently soft. If you look at the asset modelling of shipping companies in India, we do not have major Capesize capacity; we have major concentration on Handymax & Panamax, and some amount on Supramax. That is one of the reasons why Indian shipping company stocks are not moving in line with the BDI,” explained Kunal Lakhan, research analyst, KR Choksey.

The analyst pointed out that the increase in Indian iron-ore export duty by 5% has led to a shift of Chinese iron-ore purchases from other countries, specifically Australia and Brazil. This is turn had a positive effect on the BDI, as iron-ore exports from Australia and Brazil are generally through Capesize vessels.

Going forward, the BDI is likely to show a positive change with growing demand for iron ore. Further, China’s coal demand is also expected to increase, thus adding to more robust growth in global shipping traffic.

What do all these changes hold for India? A positive growth for Indian companies seems to be unlikely, at least on the bulk side. “Shipping traffic has shifted from India (iron ore) to countries like Australia and Brazil. In addition, with the onset of the monsoon, shipping of coal and iron ore will take a hit,” added the analyst.

 

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