Report tips a dry-bulk cargo boost

TAIWAN's dry-bulk shippers are expected to see faint signs of a selective upturn this year, according to a S.G. Warburg Securities report.

The report says that increasing global demand for certain raw materials, coupled with increased scrapping of older tonnage and a decrease in deliveries of new tonnage, would push much of the dry-bulk sector into a cyclical upturn.

''Having avoided the precipitous plunge in rates that their dry bulk counterparts suffered in 1992, we do not expect the surge in rates among Taiwan's container shippers, such as Evergreen Marine, that we envision among the dry bulkers,'' it says.

''We therefore recommend investors begin switching in early 1993. Out-performance by the dry bulkers will be most marked in late 1993, by which time the recovery will be well under way.'' The report, which was prepared by Alan Hellawell, states that there has been a clear downturn in 1992 results among Taiwan's three dry-bulk shippers - U-Ming, First Steamship and Sincere Navigation.

A sluggish wheat trade and an influx of new tonnage had depressed profits at U-Ming and First Steamship, it says, adding that both companies' rates were highly geared to the capricious grain trade, with most of their respective fleets composed of Panamaxvessels.

Sincere, whose fleet composition is 75 per cent Capesize vessels, had forecast a 50 per cent year-on-year fall in profits due to a decrease in world steel output, it adds.

The brokerage advises investors to buy U-Ming, hold Sincere and sell First Steamship, but with a warning that investment in these stocks requires vigilant monitoring.

''Global treaties have traditionally had an impact, at least symbolic, on the share prices of the world's shippers. Thus, the successful conclusion of the Uruguay Round of GATT, and the expected stimulation in trade, should also serve to improve prospects in 1993 for Taiwan's bulk shippers,'' it says.

The report predicts a modest three per cent recovery in Japanese steel output this year, behind the implementation of Japan's 10.8 trillion yen (about HK$667 million) fiscal stimulus package and recently approved supplement.

This would offset a fall in iron ore importation from EEC countries. However, the mainland Chinese steel production and, to a lesser extent, South Korean and Taiwanese, to keep regional trade buoyant, it adds.

A gradual recovery in the world economy would increase total output one per cent year-on-year this year, other Asian-Pacific markets showing faster growth in crude steel production, the report says.

It goes on to say continued growth in Japanese and German steam coal imports, and expanding coal-fired electricity generation in Southeast Asia should keep overall steam coal trading buoyant.

Despite concern over the environmental impact of steam-fired electricity, the report expects a 60 per cent rise in shipments up to 2000.

Turning to grain, the report says that although problems of ration credit remain unresolved, growing Chinese orders for US wheat should keep spot rates relatively strong throughout the year.