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Indian shipping stocks sink even as key sea freight index rises

Baltic Exchange’s sea freight index, Baltic Dry Index (BDI) is rising again but not the stock prices of Indian shipping companies

Since hitting a low of 2,175 on September 2009, the Baltic Dry Index has shot up 89% closing the day on 13 November 2009 at 4,111. During the same period ABG Shipyard (ABG), Bharati Shipyard (BS), Essar Shipping Ports & Logistics (Essar), Great Eastern Shipping (GE) and Mercator Lines (ML) were down by 16%, 23%, 9%, 4% and 3% respectively while Shreyas Shipping & Logistics (SSL) and Varun Shipping were down 7% and 6%. Only Shipping Corporation of India (SCI) was up 4%.

This is not the first time that shipping stocks have missed the BDI trigger. Thanks to the Chinese demand for iron ore, the shipping freight market is bouyant. There has also been continued growth in demand for panamax vessels. In Europe iron ore demand has picked up along with a seasonal demand for coal, especially in France and Germany, helping to bolster interest for the larger capesize ships and also smaller panamax vessels. In Brazil, China and at Australia’s Dalrymple Bay, port congestion has tied up many capesize vessels, which typically haul 150,000 tonne cargoes such as iron ore and coal. Even the Pacific capesize freight rates are continuing to firm on the back of iron ore demand into China. Meanwhile, average panamax rates have increased as demand to transport grain, iron ore and coal within the Asian trading region saw the number of available ships reducing. BDI which hit 11,771 on 21 May 2008 slumped massively by 94% to hit a low of 663 on December 2008 as global trade collpased following the global economic slowdown. During the same period ABG, BS, Essar, GE, ML, SCI, SSL and Varun were down between 48%-88%.

However, from December 2008’s low, BDI went on to hit a high of 4,291 on 6 March 2009, a 547% jump as China’s 4 trillion yuan ($913 billion) economic stimulus package improved spending in infrastructure projects drawing demand for raw material. Surpisingly, Indian shipping companies failed to rise in tandem. ABG, BS, SSL and Varun were down by 18%, 23%, 16%, 23% and 2% respectively whereas SCI and GE were up 5% each.

Meanwhile, in September 2009, the BDI slipped by 2,116 points from the March 2009 high of 4,291 as Chinese iron ore and coal imports plunged and ship congestion was seen declining. During this period, shipping stocks like ABG, BS, Essar and ML zoomed by 237%, 328%, 182% and 145% respectively while GE, SCI, SSL and Varun saw a decent gain of 77%, 96%, 93% and 40% respectively. It is not clear to market experts where the BDI is headed. Freight rates are expected to come under pressure on concerns over the rising number of new ships set to hit the market in the year 2010, despite indications of some vessel cancellations and delays. 
 

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