Experts have spent most of the past five years guessing when the recovery in global shipping markets will begin. Up until recently there wasn't much to cheer about - too many vessels and an unconvincing global economic recovery - but we detected a ripple of excitement during the summer when the widely watched Baltic Dry Index (BDI), a tracker of freight rates for vessels carrying dry bulk such as iron ore and coal, hit an 18-month high. It's now approaching a two-year record after doubling in just six weeks, and shareholders in the London-listed brokers and ship owners are sitting pretty.
Indeed, since the BDI began its uptrend at the beginning of June, the ship brokers - Clarkson (CKN), Braemar Shipping (BMS) and ACM Shipping (ACMG) - have risen on average by more than 25 per cent. Vessel owner Goldenport (GPRT) is up 50 per cent from its July low and Hellenic Carriers (HCL) has more than doubled.
Clearly, the economic recovery, particularly in the US, is welcome, but it's not what's driving this rally. As we reported in July (Shipping recovery on the horizon), this is all to do with China. A gamble that iron ore prices would keep falling and a short-term credit crunch halved stockpiles there earlier this year. Government intervention forced prices back up and miners have taken advantage of ongoing restocking, hiring every huge Capesize bulk carrier available to ship all they could before the seasonally weak first quarter. That's squeezed Capesize rates - which have easily the largest weighting in the BDI - from just a few thousand dollars a day to over $40,000, generating extra commission for brokers, but also skewing the index higher.
Prices for second-hand ships are rising, too, up over 10 per cent in the past few months and underpinned by the popularity of dollar-denominated assets. Mark Williams, research director at Braemar Seascope, reckons they're still good value.
