Jefferies has dimmed its first-quarter outlook on dry bulk equities, based on China’s moves to curb steel production during the Lunar New Year and Winter Olympics in Beijing.
The US investment bank lowered price targets for Diana Shipping to $4.50 from $5.50 and Safe Bulkers to $4 from $5.50, while reducing earnings per share estimates (EPS) for all seven bulker stocks that it covers.
Jefferies also reiterated “hold” ratings for Diana and Safe but kept buy ratings for Eagle Bulk Shipping, Genco Shipping & Trading, Grindrod Shipping, Navios Maritime Partners and Star Bulk Carriers.
“Chinese iron ore and coking coal imports remain under pressure for the time being due to Chinese regulations aimed at curbing steel production and improving air quality,” analyst Randy Giveans wrote in a note on Wednesday.
“These regulations will likely be loosened after Lunar New Year and the Beijing Olympics as Chinese authorities attempt to stabilize the domestic real estate market and encourage economic growth.”
Jefferies cast down the EPS estimates after lowering spot-rate forecasts across dry bulk shipping through 2023, but still remained bullish on the smaller asset classes.
“The minor bulk trade is much more leveraged to overall global economic growth, and global GDP is projected to increase by 4-5% this year, further supporting mid-sized rates,” Giveans wrote.
But Jefferies still lowered 2023 forecasts for average capesize spot rates by $2,000 to $24,000 per day. His supramax projection moved to $20,000 per day, which was also a $2,000 cut.
The bank lowered both the EPS and spot-rate estimates despite the positive outlook to remain “conservative out of the gate”, Giveans told TradeWinds.
Eagle Bulk’s EPS forecast for 2022 took the biggest hit from Jefferies, with a drop to $14.87 from $17.26.
He also noted in the client report that Brazilian iron ore exports were 6% higher during 2021 at 326m tonnes and should increase further this year as Brazilian miner Vale ramps production.
Despite torrential Brazilian rains disrupting its Minas Gerais mines, Vale expects to dig up 370m tonnes of the steel-making commodity this year amid planned capacity growth for its northern and southeastern mining operations.
Giveans also pointed to an orderbook-to-fleet ratio of just 6.9%, while Jefferies anticipates that fleet growth will slow to 2% during 2022 and 1% to 2% for the following year.
Clarksons Platou Securities said that shipping equities have risen following stock-market jitters but are still trading at a discount to NAV.
“Valuations are still lower than a couple of weeks ago, which could provide an attractive entry point,” the Clarksons investment banking arm wrote on Wednesday.
Giveans said dry bulk stocks typically trade at discount to NAV as a result of investor skepticism, strained balance sheets and poor capital allocation.
“The former will take time to change, and the latter should be mostly resolved as the balance sheets are now in great shape and dividends are being paid,” he told TradeWinds.
