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Shipping attracts negative investor sentiment despite historic low rates

Monday, 13 February 2012 | 00:00
Short sellers trim their positions in bulk shipping companies but still target tankers despite historic lows in shipping rates. Companies covered include: Genco Shipping & Trading Limited (NYSE:GNK), Eagle Bulk Shipping Inc. (NASDAQ:EGLE), Excel Maritime Carriers Ltd (NYSE:EXM), Kawasaki Kisen Kaisha, Ltd. (TYO:9107), Ultrapetrol (Bahamas) Limited (NASDAQ:ULTR) and Nippon Yusen Kabushiki Kaisha (TYO:9101).
The global shipping industry has hit a rough patch of late. The Baltic Dry Index recorded a 25 year low last week and Bloomberg identified two main causes; the recent slump in shipping rates due to the slowing demand for commodities transported by dry goods ships together along with a glut in capacity, as new ships ordered at the height of the last boom come on stream.
Long seen as a benchmark for global economic health, we assess the sector to see whether short sellers have increased their positions in shipping firms prior to the collapse in charter rates and whether this is confined to the shipping of dry bulk or “wet” goods such as oil and gasoline. We find that dry firms have the greatest average short interest but have seen some short covering; we also see that the short interest in tanker firms stands just off annual highs.
The chart below highlights average short interest across global marine shipping firms, as defined by S&P Capital IQ.
Short interest in bulk shipping firms stood at a relatively low 2% of the market cap at the end of 2010, yet this increased sharply by a third at the start of 2011. Short sellers gradually built their exposure throughout the first half of last year as the global economic picture darkened to reach a high of 3.4% of shares outstanding at the start of August. Short sellers covered slightly and bulk firms now see 2.9% of their shares sold short on average.
On the tanker side, short interest has risen from 1.5% at the end of 2010 to the current 2.25%, which is just off recent highs of 2.35% seen in the middle of January.
Most Shorted Global Shipping Firms
Looking at the top 10 most shorted shipping firms as shown in the table above, we find that short interest is highest in the companies with heavy “dry” exposure.
Genco Shipping is the most shorted firm, with 32% of the total shares on loan (see chart). This is down from the highs of 37% recorded last July when the industry was heavily targeted by short sellers.
We also see high short interest in Eagle Bulk and Excel Maritime at 18.1% and 12.1% of shares outstanding respectively. All these stocks have seen their respective market caps impacted heavily by sharply falling share prices.
Looking at “wet” tanker firms, Japanese listed stocks account for two of the top three most shorted names. Kawasaki Kisen Kaisha tops the list with short interest having risen to 7.3% of the total shares in the last month (see chart). Ultrapetrol and Nipon Yusen complete the other tanker firms in the top 10 with respective short interest of 6.4% and 5.3% of shares.
Perhaps most telling in this table is the fact that heavily shorted “dry” firms have seen shorts cover in the last month. This is best exemplified by the halving of short interest in China’s COSCO to 5.5% of shares in the last month (See Chart). “Wet” firms on the other hand have seen short interest rise.
Short interest in bulk shipping firms peaked last summer as the economic crisis took its toll on global demand. It appears that the recent historic lows in shipping costs have been met by limited short covering in bulk shippers, perhaps a reflection that share prices have hit bottom. We see no such pattern in tanker firms where short selling is just off annual highs.
Source: Data Explorers
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