Dry bulk shipping
Maintain underweight: We maintain our “underweight” sector call. Our top pick is Pacific Basin Shipping Ltd (Hong Kong) on its extremely cheap valuations. Our top “sell” is STX Pan Ocean Co (STXPO, South Korea) as it is expected to be unprofitable. We have cut earnings per share by up to 40%, though we raise forecasts for Precious Shipping Pcl (Thailand). Malaysian Bulk Carriers Bhd has been downgraded from “neutral” to “underperform”.
Bulk demand growth is expected to slow down from 4.5% in 2011 to 3.9% in 2012 as China’s iron ore imports decline. For the first time in a decade, property starts in China are expected to decline due to the tightening measures imposed by the government in 2011 and investors’ pessimism on the property sector. China’s steel production has been declining since mid-2011, while iron ore stockpiles are at a peak. Away from China, world economic growth is expected to slow, which is likely to result in lower demand for bulk commodities.
There will be another round of record vessel deliveries in 2012, leading to an average fleet growth of 13.2% which will worsen the oversupply situation. The current order book still stands at a substantial one-third of global fleet despite last year’s record newbuild deliveries. We do not expect a huge volume of demolitions given the relatively young fleet. The growing global supply of ships will keep demand for bunker fuel high. High bunker costs will eat into bulk companies’ profits.
The demand-supply imbalance is set to last at least until 2013. Even a recovery in 2014 is uncertain if global growth continues to stagnate. For 2012, supply growth is projected to outweigh demand growth by nearly three times. Our revised Baltic Dry Index forecasts are 1,228 points for 2012 (-20.8% y-o-y), 1,099 (-10.5%) for 2013 and 1,154 (+5%) for 2014. — CIMB Research, Jan 30
This article appeared in The Edge Financial Daily, January 31, 2012.
Maintain underweight: We maintain our “underweight” sector call. Our top pick is Pacific Basin Shipping Ltd (Hong Kong) on its extremely cheap valuations. Our top “sell” is STX Pan Ocean Co (STXPO, South Korea) as it is expected to be unprofitable. We have cut earnings per share by up to 40%, though we raise forecasts for Precious Shipping Pcl (Thailand). Malaysian Bulk Carriers Bhd has been downgraded from “neutral” to “underperform”.
Bulk demand growth is expected to slow down from 4.5% in 2011 to 3.9% in 2012 as China’s iron ore imports decline. For the first time in a decade, property starts in China are expected to decline due to the tightening measures imposed by the government in 2011 and investors’ pessimism on the property sector. China’s steel production has been declining since mid-2011, while iron ore stockpiles are at a peak. Away from China, world economic growth is expected to slow, which is likely to result in lower demand for bulk commodities.
There will be another round of record vessel deliveries in 2012, leading to an average fleet growth of 13.2% which will worsen the oversupply situation. The current order book still stands at a substantial one-third of global fleet despite last year’s record newbuild deliveries. We do not expect a huge volume of demolitions given the relatively young fleet. The growing global supply of ships will keep demand for bunker fuel high. High bunker costs will eat into bulk companies’ profits.
The demand-supply imbalance is set to last at least until 2013. Even a recovery in 2014 is uncertain if global growth continues to stagnate. For 2012, supply growth is projected to outweigh demand growth by nearly three times. Our revised Baltic Dry Index forecasts are 1,228 points for 2012 (-20.8% y-o-y), 1,099 (-10.5%) for 2013 and 1,154 (+5%) for 2014. — CIMB Research, Jan 30
This article appeared in The Edge Financial Daily, January 31, 2012.
