The shares of domestic shipping companies are falling swiftly following a major crash in the London Baltic Exchange’s Dry Index and Dirty Tanker Index, both global benchmarks for shipping freight futures.
The Baltic Dry Index (BDI) and Dirty Index fell 23 sessions in a row, the worst decline since the third quarter of 2005. Though the BDI rose 5 per cent on Monday, it has declined by 40 per cent from its high of 11,800 on May 20.
According to stock market analysts, top foreign institutional investors (FIIs) built up huge short positions in shipping company stocks worldwide. The open interest in the domestic market also witnessed a dramatic rise of 62 per cent in a week since August 7 from the earlier 1.56-2.54 million shares.
| IN TROUBLED WATERS | |
| Companies | Fall (%) |
The share prices of companies, including Mercator Lines, Great Eastern Shipping Company, Shipping Corporation of India, Garware Offshore, Scindia Steam Navigation and Essar Shipping have declined in the range of 5-15 per cent during this period.
Asia’s largest container shipping line China Cosco Holdings witnessed a decline of nearly 10 per cent since last week. The Supertankers of Frontline, the biggest owner of ships around the world, are trading below their break-even rental rates.
According to Deepak Sawhney, head of research at Networth Stock Broking, Mumbai-based brokerage house, the fall in shipping stocks could be directly attributed to a decline in global commodity prices, mainly crude.
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“The fall in crude oil prices due to a slowdown has triggered a decline in the freight rates of tankers carrying oil, which is why the Baltic freight index is crashing and domestic shipping stocks too are falling in line,” he said.
The freight rates for bulk carriers had reached record highs at the start of this year due to a shortage of oil tankers. Worldwide, 450 double-haul oil tankers are available for transporting crude oil.
Shipping experts say that large companies and speculators who could have benefited from the rise in crude prices have utilised 25-30 per cent of this double-haul oil tanker fleet to store oil and thereby create an artificial demand-supply mis-match for both crude oil and bulk carriers.
Each of these tankers have crude storing capacity of $2.2 million tonnes and charge $36 million as rental for one year. The cost of drilling crude is between 10 and 15 dollars a barrel. So if a rig owner rents a double-haul carrier for a year, the cost of crude per barrel (including the tanker rental charges) could be around $30 a barrel.
However, with crude touching a record high of $148 a barrel recently, some of these tankers were sold in the market and this led to a crash in the oil prices. “The freight rates for ships too fell as the these bulk carriers were now available in the market for rent,” said the expert.