Freight prices are accelerating 📈 Will demand from China drive new investment trend? 🚢

Global freight prices remain at low levels, even despite the opening of China's post-pandemic economy. However, China is showing improvement in soft data such as PMI indices, and weak product import data may be tied to the use of its own stocks. How to take advantage of this information and which companies are worth watching?

• In 2022, the dry bulk market (iron ore, coal, grain, etc.) was hit by a slowdown in China - one of the world's largest hubs for seaborne commodity trade;
• Optimism about the opening up of the Chinese economy is supporting increases in dry freight rates. It is limited by poor weather in Brazil - an obstacle to increased iron ore trade but likely a temporary factor;
• Leading freight operators indicate that a successful soybean harvest in Brazil and unsold grain stocks in the US could boost bulk carrier rates as countries replenish inventories after last year's supply shock. In addition, grain inventory levels in China are relatively low, and demand remains high;
• The limited number of dry bulk vessels and scrapping of smaller aging vessels may tighten vessel availability this year lifting rates.

Momentum for dry bulk freight rates has improved dramatically. The above rates were current as of February 28, having risen about 20% since then. Source: Breakwave AdvisorsThe expectation of better demand for industrial goods from China is being felt in all markets, but so far there is still a lack of concrete data to confirm such a scenario. It is worth noting, however, that China may be using its inventories and import demand growth will pick up later this year. Source: Breakwave Advisors

Both spot rates on the world's 20 largest sea lanes and dry freight futures have resumed bullish momentum. Source: Breakwave Adivsors

Will Star Bulk benefit from possbile China's demand?

Star Bulk Carriers (SBLK.US) is the largest Wall Street-listed dry bulk freight company.

• It has a fleet of 128 relatively ships (average age of 11 years), about $356 million in cash and has reduced net debt by 40% in the last 2 years, and regularly pays dividends;
• New marine conservation regulations in 2023 will make ships reduce speed to reduce emissions, which could raise freight rates;
• The company's CEO Petros Pappas pointed out that other grain exporting countries are successfully filling the gap of lost supplies from war-ridden Ukraine;
• 94% of the company's fleet is equipped with so-called scrubbers, which can improve leverage on fuel price spreads and potentially a competitive advantage during a downturn;

Q4 results beat analysts' expectations by 10% on revenue, earnings came in 8% above forecasts ($0.82 earnings per share and $294.8 million in Q4 revenue and $556 million in profit and $5.52 in earnings per share for the full year 2022).

Star Bulk Carriers shares, D1 interval. Despite fears of a recession, the stock held a key zone for demand between $17 and $20 and resumed gains by climbing above the 200-session average (red line) and the 38.2 Fibonacci retracement of the upward wave initiated in 2020. Source: xStation5