Shipping freight rates: Going strong

The chilly winter in North America, Europe is pushing up the freight rates

Spot freight rates in the key tanker segment have skyrocketed in the last fortnight due to the chilly winter in North America and Europe.

According to senior shipping company executives, there is a strong demand for tankers from the western refiners for transporting crude oil from West Asia to their facilities in anticipation of a strong demand for petroleum products during winter.

The Indian shipping companies have an overwhelming capacity in the tanker segment and the increased demand is expected to help them in getting better realisations.

The spot freight rates in the VLCC (very large crude carriers) segment are $141,505 a day, compared with the average spot freight rate of $24,938 in November 2007, point out analysts.

The VLCC carriers are used to transport crude oil from West Asia to the western refiners. The average spot freight in this segment was $15,226 a day in the September 2007 quarter.

In other tanker segments such as Suezmax, the current spot freight rate is $88,375 a day compared with the average spot freight rate of $14,099 a day in the September 2007 quarter.

Meanwhile, in the dry bulk segment, freight rates continue to be strong, thanks to the booming Chinese demand for commodities. The Baltic Dry index is currently at 9,949 compared with the average level of 7,348 in the September 2007 quarter.

An improved operating environment for this sector has not gone unnoticed by the street. GE Shipping touched a 52-week high of Rs 537 on Monday. Similarly, Varun Shipping hit a yearly high of Rs 90.45 during intra-day trade on Monday.

Nicholas Piramal: Good health

The stock market may be going downhill over the past few days. But the stock of Nicholas Piramal was up 7 per cent to Rs 368 on Tuesday and 14 per cent over the previous week.

While a defensive pharma scrip is an ideal choice during volatile times, the Nicholas stock has clearly benefited from two triggers over the last few weeks. One is the process and product patent from the US Patent and Trademark office for the anti-cancer compound P-276-00.

The other is the R&D collaboration agreement with MSD Pharmaceuticals, the Indian subsidiary of Merck, US, for discovering and developing two targets (a precursor to developing a compound) identified by Merck.

Both these developments will accrue to the R&D arm Nicholas Piramal Research Centre (NPRC) that Nicholas Piramal will be hiving off over the next few months. NPRC will be listed separately on the bourses in mid-2008.

The market for the anti-cancer compound is $2.6 billion worldwide and Nicholas expects to complete clinical trials and launch the product by FY11. The in-licensing deal with Merck will bring milestone payments to NPRC for the development of the two drug candidates.

The company's consolidated sales in Q2 FY08 grew 16.8 per cent y-o-y to Rs 787.8 crore and its operating profit margin was maintained at 17.4 per cent.

At its current price, the stock trades at 21 times its estimated FY08 earnings and 17-18 times FY09 earnings. The stock has run up 26 per cent over the past month, and may take a breather at the current levels.

With contributions from Amriteshwar Mathur and Ram Prasad Sahu