China stimulus good for shippers, if they survive

By Nick Carey - Analysis

DETROIT (Reuters) - The 4 trillion yuan ($586 billion) Chinese stimulus package is likely to be a boost for the world's battered bulk shippers, but only if they survive long enough for the country's planned infrastructure projects to get rolling.

"The Chinese stimulus package is all well and good, and it's the right idea," said Natasha Boyden, an analyst at Cantor Fitzgerald. "But it won't happen overnight."

The abrupt end to the recent boom for bulk shippers left many laden with debt for ships they bought at the top of the market. They now owe more than their ships are worth, meaning Chinese stimulus spending will come too late for many.

"A number of bulk shippers are going to struggle to survive through 2009," Boyden added.

"For heavily leveraged shippers in particular," said Omar Nokta, an analyst at Dahlman Rose, "the next couple of quarters look pretty difficult."

Dry bulk shippers haul vast quantities of bulk commodities such as iron ore, coal, steel and grain. More than 90 percent of the world's traded goods by volume is carried by sea.

These shippers have seen their world turn upside down. Just seven months ago, the Baltic Exchange's chief sea freight index .BADI hit an all-time high of 11,793, and their ship charter rates soared on demand for raw materials from China and India.

But the blood bath on Wall Street and falling commodity prices hit charter rates, which nose-dived after the collapse of Lehman Brothers (LEHMQ.PK) in September.

"FELL OFF THE TABLE"

"The dry bulk market simply fell off the table," said Nikolas Tavlarios, president of marine fueling company Aegean Marine Petroleum Network (ANW.N).

Much of that fall came as China cut back on iron imports and steel production as prices and global demand for steel dropped.

China is the world's biggest importer of iron ore, accounting for 45 percent of all imports in 2007. It is also the world's largest steel producer, so Chinese cutbacks dealt a devastating blow to bulk shippers.

"China is not just a major player -- China is the market for iron ore," said Gregory Lewis, an analyst at Credit Suisse.

The sea freight index hit a low of 663 on December 5 -- more than 94 percent below its May 20 peak. Daily charter rates for capesize ships, the largest bulk-carrier class, fell more than 98 percent to $3,000 in November from $230,000 in May.

The credit crunch made matters worse, as banks avoided issuing letters of credit -- bank guarantees on behalf of buyers that are given to exporters -- leaving cargoes stranded.