Sector Wrap: Shippers Rise on Day Rates
Tuesday June 20, 4:39 pm ET
By James Amend, AP Business Writer
Shares of Ocean Shippers Rise on Day Rate Pricing Power of Tankers, Dry Bulk Carriers
NEW YORK (AP) -- Shares of ocean shipping companies closed higher Tuesday as investors learned of the industry\'s growing pricing power in its day rates, or charter business.
Frontline Ltd. led all gainers, as shares of the crude shipper rose $1.01, or 3.1 percent, to close at $34.13 on the New York Stock Exchange. Knightsbridge Tankers Ltd. also an operator of very large crude carriers, gained 53 cents, or 2.2 percent, to close at $25.21 on the Nasdaq. Shares of dry bulk carrier Omega Navigation Enterprises Inc. added 25 cents, or 2 percent, to $13.40 on the Nasdaq.
One reason for the heightened activity in shipping stocks, which began a modest rally late last week, could be that retail investors are learning of the day rate phenomenon on the heels of more informed institutional investors. Day rates can drive earnings, analysts said, and shipping companies typically share their success with investors by paying big dividends.
In a note to clients Tuesday, G. Scott Burk, an analyst with Bear Stearns in New York, maintained an "Underweight" rating on the ocean shipping sector. He wrote the recent increase in day rates among shippers could be a temporary phenomenon and warned of seasonal weakness in the third quarter, when the summer driving season ends.
But Burk indicated second-quarter tanker day rates were 15 percent higher than Bear Stearns previously estimated. The bounce was particularly high among very large crude carriers, where second quarter rates are 49 percent higher than previously estimated.
Compared with the same period a year ago, big crude carrier day rates are up 37 percent in the second quarter. The average day rate is currently $74,000 a day, or twice the amount charged in April, according to Burk. Smaller Aframax tankers command $27,000 a day, or double what they charged two weeks ago.
Among the factors driving day rate pricing power, Burk said, is increased Chinese demand and that some tankers are being removed from the market temporarily for storage purposes.
Douglas J. Mavrinac, an analyst with Jefferies & Co., said in an interview some very large crude carriers are charging more than $75,000 per day. Demand is so high, he said, Knightsbridge has two of its five big crude carriers devoted entirely to day rates, or the spot market.
Mavrinac noted most tanker bookings in the spot market are being made with an eye on delivery in August, when the driving season peaks.
Dry bulk rates are 5 percent higher than Bear Stearns\' previous estimates, but likely unsustainable, Burk said.
"Similar to our view on the tanker side, we believe the run up in dry bulk day rates this month is likely to be a temporary phenomenon, with day rates receding later this summer," he said.
Other gainers on Tuesday included Aries Maritime Transport Ltd., which gained 30 cents, or 2.7 percent, to $11.53 on the Nasdaq. Shares of OMI Corp. closed up 52 cents, or 2.6 percent, to $20.41 on the NYSE.