MIDF Research maintained its stance on the shipping sector due to persistent problems that are caused by depressing rates or moderation of upside potential.
It said on Monday, Oct 3 that while Baltic Dry Index (BDI) had recovered in 3QFY11 and may stabilise in 4QFY11, it expect the pressure to the rates will remain given that the overcapacity issues are not being addressed.
In addition, it said the current uncertain economic condition, coupled with the volatile market will likely to continue next year, thus further dampening growth and erode demand.
However, the research house maintained its neutral call on both Maybulk and MISC.
MIDF Research said that based on the median of economists' estimates compiled by Bloomberg, China would expand 8.7% y-o-y in 2012, compared with 9.3% y-o-y expected in 2011.
The consensus forecast suggests that breakeven rates for ship owners will not come until 2015, it said.
It said the BDI which reflect the cost to ship bulk products such as iron ore, coal and grains rebound to about 1,920 on Sep 23, 2011, representing 84.1% increase since Feb 4, 2011.
“This was surprising given the hanging overcapacity problem in the industry is still unresolved.
“We understand that the rally is continuing because more ships are being sought by the three top iron-ore producers, Vale SA, Rio Tinto Group and BHP Billiton Ltd., to export cargoes," it said
Meanwhile, MIDF Research said the Baltic Dirty Tanker Index (BDTI), which tracks the shipping rates for tanker had not broken 700 points since Aug 2011 and had only reached above 1,000 points in March this year.
"According to Baltic Exchange, very large crude carriers, or VLCCs, are losing US$ 2,251 a day on the benchmark route of Saudi Arabia to Japan, extending a run that began Aug 26, 2011.
“Rates are coming under downward pressure given that there are more offers for one cargo," it said.