Shipping stocks in rough seas as freight rates continue to fall

29 May 2017

Stocks of shipping companies such as Shipping Corporation, Essar Shipping and Great Eastern Shipping have been falling since April following the continuous weakness in freight rates.

Shares of Shipping Corporation fell 12.63 per cent in the last one week, while GE Shipping edged down 5.23 per cent. In the last one month, both these stocks fell 14.35 per cent and 14.15 per cent, respectively. The stock of Essar Shipping slipped 1.56 per cent in one week and 8.16 per cent in a month.

The main sea freight index of the Baltic Exchange, which tracks rates of ships carrying dry bulk commodities, fell for the seventh session on Tuesday, weighed down by falling rates for most vessels.

Analysts said, the shipping business has been affected due to excess supply that puts pressure on freight rates. Slowdown in China’s growth and fall in demand in Europe and the US have adversely impacted the business environment, they added.

A Kotak Securities report on GE Shipping said: “Increased scrapping, slow new orders, lower bunker prices and stable demand for commodities is positive for the company (GE Shipping), but we estimate that pressure of oversupply of ships to continue to keep freight rates subdued.” Kotak Securities has maintained its ‘sell’ stance on the stock with a target price of ₹360.

Even for Shipping Corporation, Kotak Securities said: “We expect the revenues and operating margins to drop in the current quarter (y-o-y) primarily on the back of weak shipping markets. In the absence of impairment or any similar exceptional loss, we expect the company to report marginal profits.”

SOURCE:  the hindubusinessline