By Isaac Arnsdorf - Feb 19, 2013
Bloomberg
The glut of grain-carrying Panamax ships is so great that even record cargoes from South America and a 34 percent surge in freight rates will be insufficient to halt five quarters of unprofitable charters.
Earnings from the ships hauling about 75,000 metric tons of soybeans and grains will rise to an average of $9,000 a day in the second quarter from $6,732 now, according to New York-based Morgan Stanley. Traders can profit by purchasing shipping swaps called Forward Freight Agreements, which currently anticipate rates of $8,690 for the same period.
Shippers will have a harder time eking out gains because bank estimates and derivatives are below $11,000, the approximate amount owners need to pay running expenses and debt, according to Pareto Securities AS. The Panamax fleet is expanding four times faster than demand for grains after owners ordered the most new vessels ever in 2010, when rates averaged $25,000. Soy and corn exports from Argentina and Brazil will rise 2.5 percent this harvest year to a record 87.3 million tons, the U.S. Department of Agriculture predicts.
“The South American harvest is going to offer owners some respite,” though it won’t provide a sustained rally, Marc Pauchet, an analyst at ACM Shipping Group Plc, a London-based shipbroker, said in a Feb. 13 e-mail. “Brazil and Argentina are stepping up to fill the deficit, which will make this season busy, but there are still way too many ships.”
Slump to Persist
FFAs for the second quarter gained 14 percent from the start of this year, tracking a 22 percent advance in charter rates, according to the Baltic Exchange, which publishes prices for the swaps and shipping rates on more than 50 maritime routes. The $8,690 a day anticipated by FFAs for the second quarter will slump to $7,150 in the following three months before rallying to $7,992 in the final quarter of 2013, the bourse’s data show.
The fleet expanded 13 percent to 171.8 million deadweight tons in the past year, according to data from IHS Inc., an Englewood, Colorado-based researcher.
Supply of Panamaxes, the largest ships to navigate the Panama Canal, will increase by another 13 percent this year, more than three times faster than trade in iron ore, coal and grains, according to data from London-based Clarkson Plc. About 40 percent of Panamax cargoes are grains, according to ICAP Shipping International Ltd., a London-based unit of ICAP Plc, the biggest broker of trades between banks.
Long-Term Charters
Of the world’s six largest owners of the vessels, Safe Bulkers Inc. has the highest proportion of Panamaxes in its overall fleet, according to data from Clarkson, the world’s largest shipbroker. The Athens-based company’s shares plunged 52 percent to $3.63 in the past year and will rebound to $4.49 within 12 months, according to the average of five analyst estimates compiled by Bloomberg.
Safe Bulkers is avoiding the slump because it leased out vessels on long-term contracts that don’t fluctuate as much as day-to-day charter rates, according to Natasha Boyden, an analyst at Global Hunter Securities LLC in New Orleans who has covered the industry for 12 years and recommends buying the shares. At least 16 of the company’s 24 vessels have charters until July, according to data on the ship owner’s website.
South American farmers are increasing output after the worst drought in half a century curbed crops in the U.S., the biggest exporter. Rain in Brazil’s biggest soy-growing state of Mato Grosso is lifting production and disrupting transportation, another positive for rates. Vessels at Brazilian ports may have to wait as long as 50 days to load, Siegfried Falk, co-editor of Oil World, a Hamburg-based forecasting service for oilseed crops, said Feb. 14. Delays curb vessel supply.
Port Delays
“The harvest is very good, which is a boost for the market, and we expect port congestion will also help,” Loukas Barmparis, president of Safe Bulkers, said by phone Feb. 15. “We see the current market is recovering gradually and expect we will see a better quarter. Any good news on the demand side is very good, because the market will still suffer this year from excess supply.”
There were 25 vessels berthed, arrived or expected to load corn at Brazil’s five major ports on Feb. 13 and 106 for soybeans, compared with six for corn and 51 for soybeans a year ago, according to SA Commodities. The ships include Panamaxes and smaller vessels.
U.S. Cargoes Shrink
Additional cargoes from South America will be offset by lower exports from the U.S., which produces 25 percent of the world’s seaborne supply. American shipments plunged 17 percent to 72.5 million metric tons in the 2011-12 crop year and will slump another 14 percent in the current season, according to Clarkson. Global trade in grains and soy will swell 3.1 percent this year, the broker estimated in a January report.
“Last year the U.S. grain harvest was a disaster,” said Global Hunter’s Boyden. “That really impacted the vessels. The grain harvest in South America is looking much better, and that will certainly have an impact.”
While Safe Bulkers’ most-watched measure of net income will decline to $81.6 million this year from $90.2 million in 2012, its profit will exceed earnings of any owner in the 12-member Bloomberg Dry Ships Index, according to analysts’ forecasts gathered by Bloomberg. The company with the largest weighting in the index, Hong Kong-based Pacific Basin Shipping Ltd., will earn $39 million, the average of 19 estimates shows.
Unprofitable Ships
Tianjin, China-based China Cosco Holdings Co., the biggest owner of Panamaxes, will narrow its net loss this year to $184.7 million from $1.03 billion in 2012, according to the average of as many as 28 analyst estimates compiled by Bloomberg. Tokyo- based Nippon Yusen K.K., the second-largest, will earn $53.3 million, 14 estimates show.
Cosco and Nippon Yusen’s fleets include oil tankers, container ships and other vessels. Three of six oil-tanker types aren’t making enough to cover their daily running costs, according to the Baltic and International Maritime Council, the industry’s biggest trade group. Bloomberg Industries’ index of container-shipping stocks slumped 22 percent in the past year.
“Last year was a disaster because of the U.S. drought, whereas now we expect to see a pickup because South America should have a very strong season,” said Herman Hildan, an analyst at RS Platou Markets AS in Oslo. “It looks quite good from a rate perspective, even though it’s low now.”
Bloomberg
The glut of grain-carrying Panamax ships is so great that even record cargoes from South America and a 34 percent surge in freight rates will be insufficient to halt five quarters of unprofitable charters.
Earnings from the ships hauling about 75,000 metric tons of soybeans and grains will rise to an average of $9,000 a day in the second quarter from $6,732 now, according to New York-based Morgan Stanley. Traders can profit by purchasing shipping swaps called Forward Freight Agreements, which currently anticipate rates of $8,690 for the same period.
Shippers will have a harder time eking out gains because bank estimates and derivatives are below $11,000, the approximate amount owners need to pay running expenses and debt, according to Pareto Securities AS. The Panamax fleet is expanding four times faster than demand for grains after owners ordered the most new vessels ever in 2010, when rates averaged $25,000. Soy and corn exports from Argentina and Brazil will rise 2.5 percent this harvest year to a record 87.3 million tons, the U.S. Department of Agriculture predicts.
“The South American harvest is going to offer owners some respite,” though it won’t provide a sustained rally, Marc Pauchet, an analyst at ACM Shipping Group Plc, a London-based shipbroker, said in a Feb. 13 e-mail. “Brazil and Argentina are stepping up to fill the deficit, which will make this season busy, but there are still way too many ships.”
Slump to Persist
FFAs for the second quarter gained 14 percent from the start of this year, tracking a 22 percent advance in charter rates, according to the Baltic Exchange, which publishes prices for the swaps and shipping rates on more than 50 maritime routes. The $8,690 a day anticipated by FFAs for the second quarter will slump to $7,150 in the following three months before rallying to $7,992 in the final quarter of 2013, the bourse’s data show.
The fleet expanded 13 percent to 171.8 million deadweight tons in the past year, according to data from IHS Inc., an Englewood, Colorado-based researcher.
Supply of Panamaxes, the largest ships to navigate the Panama Canal, will increase by another 13 percent this year, more than three times faster than trade in iron ore, coal and grains, according to data from London-based Clarkson Plc. About 40 percent of Panamax cargoes are grains, according to ICAP Shipping International Ltd., a London-based unit of ICAP Plc, the biggest broker of trades between banks.
Long-Term Charters
Of the world’s six largest owners of the vessels, Safe Bulkers Inc. has the highest proportion of Panamaxes in its overall fleet, according to data from Clarkson, the world’s largest shipbroker. The Athens-based company’s shares plunged 52 percent to $3.63 in the past year and will rebound to $4.49 within 12 months, according to the average of five analyst estimates compiled by Bloomberg.
Safe Bulkers is avoiding the slump because it leased out vessels on long-term contracts that don’t fluctuate as much as day-to-day charter rates, according to Natasha Boyden, an analyst at Global Hunter Securities LLC in New Orleans who has covered the industry for 12 years and recommends buying the shares. At least 16 of the company’s 24 vessels have charters until July, according to data on the ship owner’s website.
South American farmers are increasing output after the worst drought in half a century curbed crops in the U.S., the biggest exporter. Rain in Brazil’s biggest soy-growing state of Mato Grosso is lifting production and disrupting transportation, another positive for rates. Vessels at Brazilian ports may have to wait as long as 50 days to load, Siegfried Falk, co-editor of Oil World, a Hamburg-based forecasting service for oilseed crops, said Feb. 14. Delays curb vessel supply.
Port Delays
“The harvest is very good, which is a boost for the market, and we expect port congestion will also help,” Loukas Barmparis, president of Safe Bulkers, said by phone Feb. 15. “We see the current market is recovering gradually and expect we will see a better quarter. Any good news on the demand side is very good, because the market will still suffer this year from excess supply.”
There were 25 vessels berthed, arrived or expected to load corn at Brazil’s five major ports on Feb. 13 and 106 for soybeans, compared with six for corn and 51 for soybeans a year ago, according to SA Commodities. The ships include Panamaxes and smaller vessels.
U.S. Cargoes Shrink
Additional cargoes from South America will be offset by lower exports from the U.S., which produces 25 percent of the world’s seaborne supply. American shipments plunged 17 percent to 72.5 million metric tons in the 2011-12 crop year and will slump another 14 percent in the current season, according to Clarkson. Global trade in grains and soy will swell 3.1 percent this year, the broker estimated in a January report.
“Last year the U.S. grain harvest was a disaster,” said Global Hunter’s Boyden. “That really impacted the vessels. The grain harvest in South America is looking much better, and that will certainly have an impact.”
While Safe Bulkers’ most-watched measure of net income will decline to $81.6 million this year from $90.2 million in 2012, its profit will exceed earnings of any owner in the 12-member Bloomberg Dry Ships Index, according to analysts’ forecasts gathered by Bloomberg. The company with the largest weighting in the index, Hong Kong-based Pacific Basin Shipping Ltd., will earn $39 million, the average of 19 estimates shows.
Unprofitable Ships
Tianjin, China-based China Cosco Holdings Co., the biggest owner of Panamaxes, will narrow its net loss this year to $184.7 million from $1.03 billion in 2012, according to the average of as many as 28 analyst estimates compiled by Bloomberg. Tokyo- based Nippon Yusen K.K., the second-largest, will earn $53.3 million, 14 estimates show.
Cosco and Nippon Yusen’s fleets include oil tankers, container ships and other vessels. Three of six oil-tanker types aren’t making enough to cover their daily running costs, according to the Baltic and International Maritime Council, the industry’s biggest trade group. Bloomberg Industries’ index of container-shipping stocks slumped 22 percent in the past year.
“Last year was a disaster because of the U.S. drought, whereas now we expect to see a pickup because South America should have a very strong season,” said Herman Hildan, an analyst at RS Platou Markets AS in Oslo. “It looks quite good from a rate perspective, even though it’s low now.”
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