Shipping stocks rally in Hong Kong as Baltic Dry Index surges

An overnight surge in the dry commodity freight market in London sent Hong Kong shipping stocks soaring yesterday, but analysts are divided on whether the rally is here to stay.

The Baltic Dry Index (BDI), the benchmark for freight costs of dry commodities ranging from iron ore to grains, closed 12 per cent higher at 1,090 points at the close of the London market on Tuesday, the highest in a month.

The rebound triggered an industrywide rally in Hong Kong shipping stocks, with the biggest gain recorded by Pacific Basin Shipping, which shot up 12 per cent to HK$3.89.

The Hang Seng Index rose 1.37 per cent.

"The shipping stock rally is a combination of seasonal factors, low stock valuations, and a potential upturn in freight rates. It may continue in the coming month," said Barclays Research director Jon Windham, who upgraded Pacific Basin to "buy" after "sell" and "hold" ratings for four years.

Before the rebound, Pacific Basin's shares had fallen 30 per cent since last month. It is the world's largest operator of handysize and handymax class vessels under 60,000 dwt that carry minor dry bulk cargoes such as fertilisers, cement and logs. Vessels with major bulk commodities such as iron ore and coal are of the 180,000 dwt capesize class, or above.