UPDATE 1-FBR cuts US dry bulk sector to underweight

June 19 (Reuters) - FBR Capital Markets downgraded the U.S. dry bulk shipping sector to "underweight" from "market weight," saying it now expects the market to balance in 2013 instead of 2012, given higher supply-growth forecasts.

Analyst Robert MacKenzie said he sees significant challenges for the dry-bulk shipping industry in the second half of 2009 based on high levels of Chinese iron ore inventories.

"Our analysis indicates that the current iron ore inventories are sufficient to support strong Chinese industrial production growth," MacKenzie wrote in a research note to clients.

The building of Chinese iron ore inventories is likely due to the Chinese posturing to try to negotiate prices downward, the analyst said.

However, once a term price agreement is settled the Chinese will no longer need to import as aggressively, he added.

MacKenzie also cut his forecast for worldwide ship building cancellations to 20 percent from 37 percent, saying he expects local governments in China and South Korea to lend capital to shipyards to support working capital needs.

"Even if Western owners cannot arrange financing, Eastern governments have capital to support the shipbuilding industry," the analyst said.

The analyst expects Capesize vessel rates to fall from current levels of around $90,000 per day to below $30,000 per day in the second half of 2009 and average below $25,000 per day in 2010.

Capesize vessels are the largest type of ships that are used to transport commodities such as iron ore and coal. (Reporting by Hezron Selvi in Bangalore; Editing by Aradhana Aravindan)