We’ve talked about the ongoing boom in the mining industry, fueled in part by the global demand for commodities and infrastructure needs, particularly in emerging countries. The latest headlines are focused on the resurgent global demand for iron ore, which is more good news for mining. But it may also be great news for shipping companies, particularly those small cap shippers that specialize in dry bulk shipping.
Iron ore, along with coal and grain, is one of the main cargoes for bulk shippers. In recent years, iron ore has commanded about 24 percent of the dry bulk market largely because it’s the essential ingredient in steel (coal is number two). Steel production is increasing all over the world, including China, and that’s driving iron ore to record prices, according to the Financial Times (http://www.ft.com/cms/s/0/b1d72b68-42a5-11e0-8b34-00144feabdc0.html#axzz1FSy6NTEV).
One of the problems holding back many shipping companies today is over capacity, thanks to a shipping boom a few years back that prompted the construction of huge numbers of new ships, many of which are now being delivered. There are simply too many ships chasing cargo loads that are increasing, but not quite fast enough to prevent definitive dips in rates. One key to picking a company not burdened by over capacity is to see if their vessels are chartered long term, rather than relying on rates on the spot market. Also, the Baltic Dry Index is a helpful reference because it tracks global shipping prices of various cargoes.
We’ve picked out four smallcap shipping companies, all that do some dry bulk shipping and all based in Greece. Each of these companies has its own particular issues and should be studied carefully–we’re certainly not promoting them–but they may be worth a look.
Excel Maritime Carriers (NYSE: EXM, http://www.excelmaritime.com/) has a fleet of 47 vessels including five of the largest ships, called capesize, which often transport iron ore. Its market cap is $391 million and just this week reported fourth quarter net income of $63.6 million, down from $81 million a year ago. Management noted that the delivery of new vessels has led to volatility in the shipping market (hello) and the stock has dipped since, all the way down to $4.87 on March 3. EXM has dropped 19.57 percent over the past year, according to Seeking Alpha, and sits at the bottom of its 52-week range of $4.51-$7.50. Could be the good iron ore news will help.
Top Ships (Nasdaq:TOPS, http://www.topships.org/) used to be solely oil tankers but in 2007 jumped into the dry bulk business with five vessels. Its stock has languished at $1 or less for about a year and investors have been critical of management’s decision-making and strategy. Its 52-week stock price range is $.62-$1.30.
Ocean Frieght, Inc. (Nasdaq:OCNF, http://www.oceanfreightinc.com/) is another dry bulker struggling to gain traction with investors. The company was hit with a Nasaq delisting notice on January 25 and has 180 days to get back into compliance. It is currently trading at $.75, nearly the bottom of its 52-week range of $.70-$2.67.
Diana Shipping (NYSE:DSX, http://www.dianashippinginc.com/) is a dry bulker with a market cap of $1.01 billion, right at the top of our smallcap range. As of the start of 2010, the company, formerly known as Diana Shipping Investments Corp., had a fleet consisting of 13 panamax dry bulk carriers and 7 capesize carriers. A recent Seeking Alpha post (http://seekingalpha.com/article/255078-diana-shipping-industry-s-best-in-class-poised-for-success?source=yahoo) calls it the shipping company “that stands out from the crowd” of dry bulkers in part because it generates “an extremely high level of free cash flow,” never a bad thing. The stock is currently trading at about $12.50 and has a 52-week range of $10.75-$15.13.