Baltic Dry Index rises 4%; spurs shipping firm shares

Shares of shipping companies listed on the Indian bourses rose on Tuesday after the Baltic Dry Index, a measure of shipping costs for commodities, advanced for the first time in a month, in London on Monday. Analysts, however, said the impact was more ?sentimental? than ?fundamental?.

Written by Nikita Upadhyay

January 6, 2010 00:21 IST

Shares of shipping companies listed on the Indian bourses rose on Tuesday after the Baltic Dry Index (BDI), a measure of shipping costs for commodities, advanced for the first time in a month, in London on Monday. Analysts, however, said the impact was more ?sentimental? than ?fundamental?.

The index rose 135 points to 3,140, up 4.4%, its highest since December 4, on increased demand to haul iron ore, the biggest dry-bulk cargo. BDI is a composite of three sub-indices that measure different sizes of merchant ships ? Capesize, Supramax and Panamax ? carrying a range of commodities including coal, iron ore and grain.

Shares of Shipping Corporation of India (SCI), Varun Shipping and Mercator Lines surged on the Bombay Stock Exchange (BSE). While SCI and Mercator Lines gained 7.7% and 3%, respectively, Varun Shipping saw a gain of 1.14% on Tuesday. Analysts feel the increase in the asset utilisation rates of shipping companies has led to rise in their scrips. ?This is a sentimental impact more than a fundamental one. None of the shipping companies are pure players in dry bulk. This is a momentum play and not directly in tandem with the stock prices,? said Rachana Kothari, research analyst, LKP Securities.

According to analysts, BDI for the past one year has been vulnerable to Chinese imports. Since China is again building up inventory in steel, coal, iron ore and aluminium, BDI has seen an advancement. However, some analysts feel that the rally in crude oil prices is also driving BDI upwards. As per Kunal Lakhan of KR Choksey, the rise of BDI is not sustainable as its upside is limited. Further, ease in congestion at major ports could affect the shipping sector which may lead to a decline in BDI. Also, additional supply of expected 15% net additions may slow down the rally in BDI.

Market opinion greatly affects the freight exchanges. The recent fall in the BDI can be attributed to many companies forecasting lower global growth and cutting their production and demand targets.

Explaining this further, Sejal Jhunjhunwala, senior research analyst, Way2Wealth, said, ?When an investor buys a shipping stock which has presence in dry bulk, he is effectively buying into the BDI.? But the quantum of exposure depends on how the company enters into shipping contracts. ?This means that revenues are directly dependant on the movement of the index,? added Jhunjhunwala.