Supply Glut Continues to Plague Shipping Sector's Recovery
Wednesday, 14 March 2012 | 11:00
After an unexpectedly strong start to 2012, Shipping stocks are once again struggling. Moody's Investor Service recently issued a report warning that the oil tanker and dry bulk sectors, already hit by oversupply now face tighter financing. "Oversupply in both sectors is quite sizeable and we think that it will take 12 to 15 months to see the light at the end of the tunnel," said Marco Vetulli, senior credit officer with Moody's, a ratings agency. Five Star Equities examines investing opportunities in the Shipping Industry and provides stock research on Frontline Limited and Eagle Bulk Shipping Inc.
Last month the Baltic Dry Index, a measure of costs to ship dry-bulk commodities, fell to the lowest monthly average in more than 25 years as a glut of vessels weighed on freight rates. With China warning of an economic slowdown, investors are concerned that iron ore demand may soon drop. Chinese officials cut the country's 2012 target growth rate to 7.5 percent the lowest year-on-year growth projection in eight years. Moreover, China has taken steps to cut its dependence on foreign owned iron ore. In recent years, domestic iron ore mining capacity grew by 25 percent annually on average, China Daily reports. Domestic iron ore production increased by 283 million tons, or 27.2 percent, last year.
Last week, Moody's Investor Service said that the global shipping slump is expected to last well into 2013 as a glut of vessels and a growing credit squeeze will challenge even the toughest companies in the seaborne sector. Reuters explains that ship owners went on an "ordering spree" between 2007 and 2009 bolstered by earnings which saw rates in the bulk sector for larger capesize vessels, transporting iron ore and coal cargoes, reaching a peak of over $230,000 a day in 2008 and over $180,000 a day for crude oil supertankers.
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Source: Five Star Equities
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