Star Bulk Carriers and Genco Shipping & Trading are both poised for better days as iron ore trades for China and Brazil continue to recover beyond expectations, analysts say.
Capesize spot rates have more than tripled to $14,000 per day since April despite Vale downtime and China's lowering of steel inventory, according to Deutsche Bank.
"Rates have rallied significantly over the last two months, quicker than expected in the face of continued headwinds," analyst Amit Mehrotra wrote in a client's note.
This bodes well for drybulk ship owners, especially Star Bulk and Genco, he said.
"With trade normalizing and the industry sporting a near record low orderbook, we forecast tightening fundamentals over the next 12-24 months," he wrote.
He said bulker stocks are trading at a 40% discount to net-asset value yet sees "significant upside" for the entire group.
"SBLK remains our top drybulk pick given the company’s modern asset base, appropriate leverage and significant exposure to scrubber economics where we see the opportunity for outsized returns," he said.
Since Vale's 25 January dam disaster in Brumadinho, Brazil, cape rates fell from $13,288 to $3,460 April 3 before returning to $13,916 as of today, according to the Baltic Exchange.
Rates were already under downward pressure as a result of US-China trade tensions.
'A turning point'
Deutsche Bank expects "continued cape strength" as Vale's weekly iron ore shipments almost doubled to five million tonnes by June amid better weather, Mehrotra said.
"In aggregate, the latest data points to a turning point in the iron ore market dynamics," commodity analyst Nick Snowdon wrote in Deutsche Bank's Iron Ore Explorer publication.
Weekly Vale shipments may settle at 6.5 million tonnes due to mine suspensions because China lessened iron ore supply by 11 million tonnes in May amid higher prices, Mehrotra said.
Its demand for imported iron ore may ramp up again in June, however, amid a 13% year-over-year jump in steel production for construction and export of steel products, he said.
"This would incentivize China to return to the import market as mill margins recover," he wrote.
"We continue to see opportunity for China to return to the import market sooner than most suspect."
