BDI Surges — Why You Should Care

The Baltic Dry Index (BDI) has surged recently, recording an up day each of the last 20 consecutive trading days.   Frank Ahrens explains the significance in “The Ticker,” a web service of The Washington Post (http://voices.washingtonpost.com/economy-watch/2009/05/obscure_baltic_dry_index_soars.html?wprss=economy-watch).  Basically this 350-year-old index, updated daily at London’s Baltic Exchange, serves two purposes: (1) it serves to fix rates for marine transport of “dry” cargoes — cement, ores, grains, scrap metal, etc; and (2) it gives investors a valuable trend line for judging the value of shipping stocks.  Incidentally, since this surge in the BDI seems to be largely a result of China importing ores to make steel, etc., it may be a leading indicator of economic activity in the world’s most populous nation.

Bloomberg says the BDI is up 25.4%, to its highest level since September last year.  http://www.bloomberg.com/apps/news?pid=20601080&sid=azoASPlWemMc&refer=asia (see the subhead “Baltic Dry” ).

This article from a Wikinvest article in March explains more about the BDI — which is a closely watched trend indicator for sophisticated investors in international commodities: http://blogs.wikinvest.com/dailyangle/2009/03/understanding-the-baltic-dry-index/

If a real-world investor wanted to use the BDI trend to help identify potential investments, perhaps he/she would first look at some of the obvious candidates.  Clearly Athens-based Diana Shipping (NYSE: DSX, http://www.dianashippinginc.com/), one of the least leveraged of the big shipping companies, might attract early attention.  DSX is trading Monday morning at $18.70, vs a 52-week high of $35.73, recorded when the BDI was still stratospherically high.  DSX may be one of the most conservative shipping stocks in a time when cash is king and debt is damned.  On the other hand, there are numerous sellside analysts following DSX, so its recent gains and relatively better recovery may be the result of sponsorship, which may also mean that it is hardly “undiscovered.” 

Drybulk vessel ASTRALE, photo courtesy TOP Ships

Drybulk vessel ASTRALE, photo courtesy TOP Ships

Athens-based TOP Ships* (Nasdaq: TOPS, http://www.topships.org/) has had an up-and-down history as a stock, and is by the numbers primarily a tanker company (oil & petroleum products cargoes for the most part).  But they have taken delivery of 5 new bulker vessels, all of which are on long-term charters (mean is 23 months).  At its last results announcement, on April 2, TOPS reported $1.01 per share for 2008, vs $4.09 for 2007.  But with its shares at $2.05 vs a year-high of $9.33, it may well be worth keeping an eye on.

Athens-based Excel Maritime Carriers Ltd (NYSE: EXM,  http://www.excelmaritime.com/), which refiled some of its financial results recently to reflect new accounting standards.  But for the first quarter of this year, it reported $2.42 per share excluding the one-time gain from the sale of a vessel, up from $1.76 last year.  Obviously since the shares are at $11.25 today vs a year-high of $53.84, the point of interest is whether earnings can keep up at the $2.42 pace — which would make the price a tad more than 1x earnings.  Hmmm.

Danish shipping giant, Copenhagen-based TORM (Nasdaq: TRMD,  http://www.torm.dk), has seen a similar price correction over the last year, and is selling for $10.41 vs a 2-week high of $37.97.  TORM operates a fleet of 130 vessels, many of which are pooled with other companies, but operated by TORM.  TORM ships are primarily tankers, but historically have included a large proportion of bulkers, many of which were scrapped over the last year.  TORM has guidance quoted in its most recent results that it expects US$100MM to US$140MM in net profit for 2009.  TORM’s primary trading is on the Copenhagen exchange, but its ADRs trade on Nasdaq.

One of the most recent shipping IPOs, Athens-based Ocean Freight Inc (Nasdaq: OCNF, http://www.oceanfreightinc.com/), has taken one of the steepest declines, possibly due to an allergic reaction on the part of shipping investors to leverage.  Shares of the pure bulker company, which operates 13 vessels of varying sizes totalling 1.2 million dwt, are trading today for $1.76 vs a year-high of $26.96.  Clearly a drop of that magnitude must make screenwatchers pause and wonder if there is more to the story than meets the eye.  But it’s also possible that, OCNF being one of the smaller entities, it is simply falling off the bottom of lists and missing the visibility that other, larger companies may get.

*client of Allen & Caron, publisher of this blog

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One thought on “BDI Surges — Why You Should Care

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