Shipping shares pick up steam

But analysts say rise unlikely to sustain

Shares of shipping companies have gained in the past month, outperforming the BSE-500 index on expectations the recent pick-up in Chinese demand for iron ore would boost freight rates.

The Baltic Dry Index (BDI), which tracks the movement of freight in the non-oil trades such as metals, has risen 41 per cent in a month till Monday. However, analysts and industry officials are still not gung-ho about the sector's prospects, as they do not expect domestic companies to be beneficiaries of the increase in trades.

Shipping Corporation of India (SCI), Great Eastern Shipping, Essar Shipping and Mercator have risen by an average of 26 per cent in a month till Monday against the 10 per cent gain in the BSE-500 index.

“Stocks have been rising on the back of a rise in the BDI. Dry bulk trade has been moving up primarily due to China stocking on metals and iron ore, sourced largely from Australia and Brazil,” said Dipen Shah, senior vice-president, research, at Kotak Securities.

This spurt in demand had also helped push up global shipping freight rates, said analysts.

These shares saw sharp falls since the beginning of this year till September, due to a drop in trade-related activities. After the BDI rise in September, the stock prices of these companies also started moving up. From January to September, shares of Mumbai-based Mercator was down 49 per cent but have since gained 35 per cent. Similarly, Essar Shipping and SCI were down 50 and 82 per cent, respectively, only to rise 33 and 24 per cent after September. Great Eastern saw a measured fall of about four per cent but gained 12.7 per cent.

Still, Indian companies would not immediately benefit from the heightened Chinese trade activity because of their small-sized vessels, said industry officials. “The dry bulk cargo demand at this point in time is for all the cape-size ships. Due to this, Indian shipping companies are not really benefiting, as most have smaller-sized ships like Panamax, Supramax and Handymax,” an SCI official told Business Standard.

Cape-size vessels are typically above 150,000 long tonne deadweight (DWT), transporting coal, ore, and other commodity raw materials. Indian shipping companies would benefit only if the dry bulk demand continues to remain strong in the coming months.

“The US has about 40 million tonnes of grain that are to be exported, mainly to Europe and West Asia,"said the official of a leading shipping company. “Since grains are a perishable cargo, it is economical to send the commodity in Panamax and Supramax. Due to this, demand for Indian smallsize ships should pick up in the coming months.”

Analysts are, therefore, wary about investments into this sector at this point. They believe the performance of shipping stocks would continue as long as the BDI was on the rise. This could come to an end once Chinese restocking gets over.

“China stocking-up is typically a phenomenon that follows a pick-up in economic activity and is cyclical in nature. We need to wait and see how long the demand from China continues,” said Shah.