Published: September 12, 2006
 
 
LONDON DryShips, Diana Shipping and four other companies that ship raw materials sold shares to the public last year as rates for the freight they carry soared.
 
Now, shares in four of the companies are below their initial public offering price and the other two have risen less than the 49 percent increase in freight rates. Stock prices are depressed by concern that rates will decline, said Richard Hunter of Lighthouse Capital Management in Houston.
 
But shares will rise as investors realize that revenue for shipping companies is on the upswing, he said. China's growing economy, and the demand it is creating for commodities like steel and coal, is driving the surge in freight rates, and that will not change any time soon, he added.
 
"The most profitable industry out there right now is shipping," said Hunter, who owns shares of Eagle Bulk Shipping which is based in New York.
 
DryShips shares have declined 17 percent in the past year to .60, below the company's IPO price of in 2005. Diana has fallen 18 percent in the past year to .43, below its offering price of . Both companies are based in Athens. Quintana Maritime, a shipper based in Glyfada, Greece, has dropped 17 percent to .18 from its IPO price of .50.
 
TBS International of Hamilton, Bermuda, has slumped 36 percent to .81, below its IPO price of .
 
Eagle shares have risen 20 percent in the past 12 months and Genco Shipping & Trading has gained 7 percent. Both companies are based in New York. Diana is listed on the New York Stock Exchange. The other five trade on the Nasdaq in the United States.
 
Fourth-quarter earnings for DryShips will be 81 cents a share, based on the average estimate of four analysts surveyed by Thomson Financial. That is more than double what it earned in the second quarter. Diana's profit per share will be 18 percent higher in the final three months of the year, analysts said.
 
While the Baltic Dry Index, a benchmark for freight rates, has risen 49 percent in the past 12 months, the price for individual shipments has risen even more, at times, because of demand from China. BHP Billiton, the world's biggest mining company, in February paid ,250 a day to hire a ship to send 70,000 tons of Australian iron ore to China. Six months later, the company paid almost three-quarters more - ,000 a day - for the same voyage, according to the ship broker, Galbraith's, in London.
 
Chinese industrial production rose 16.7 percent in July, and the economy expanded 11.3 percent in the second quarter.
 
The iron ore, coal and coke that Chinese companies devoured this year fed record steel production. China produced 36.1 million tons of steel in July, up 22 percent from a year earlier, according to the International Iron and Steel Institute in Brussels. That increased demand for export and import shipments.
 
"The demand for iron ore and coal is pretty substantial, unless you think that the market in China is going to tank, which I don't think is going to happen," said Scott Black of Delphi Management in Boston who owns DryShips shares.
 
Still, most owners charter their ships on long-term contracts, and freight rates can swing wildly, reducing owners' ability to take advantage of the current surge.
 
By the time owners agree to their next one-year or two-year charters, daily hire rates could, based on historical price swings, have fallen by half or more. Owners earned ,902 a day, on average, in 2001, ,860 in 2002 and ,962 in 2003.
 
Genco, which did not hire out most of its ships on long-term contracts, is the biggest stock market gainer. Its shares have risen 34 percent since freight rates started rising in January.
 
Investors also are concerned that too many new ships are being built. But Black says the concern is overblown.
 
"This year will be the peak build rate," he said. "After that, the increase in demand outstrips supply. If you are a short-term investor, it probably doesn't make sense. If you have a two- or three-year horizon, it's pretty good."
 
 LONDON DryShips, Diana Shipping and four other companies that ship raw materials sold shares to the public last year as rates for the freight they carry soared.
 
Now, shares in four of the companies are below their initial public offering price and the other two have risen less than the 49 percent increase in freight rates. Stock prices are depressed by concern that rates will decline, said Richard Hunter of Lighthouse Capital Management in Houston.
 
But shares will rise as investors realize that revenue for shipping companies is on the upswing, he said. China's growing economy, and the demand it is creating for commodities like steel and coal, is driving the surge in freight rates, and that will not change any time soon, he added.
 
"The most profitable industry out there right now is shipping," said Hunter, who owns shares of Eagle Bulk Shipping which is based in New York.
 
DryShips shares have declined 17 percent in the past year to .60, below the company's IPO price of in 2005. Diana has fallen 18 percent in the past year to .43, below its offering price of . Both companies are based in Athens. Quintana Maritime, a shipper based in Glyfada, Greece, has dropped 17 percent to .18 from its IPO price of .50.
 
TBS International of Hamilton, Bermuda, has slumped 36 percent to .81, below its IPO price of .
 
Eagle shares have risen 20 percent in the past 12 months and Genco Shipping & Trading has gained 7 percent. Both companies are based in New York. Diana is listed on the New York Stock Exchange. The other five trade on the Nasdaq in the United States.
 
Fourth-quarter earnings for DryShips will be 81 cents a share, based on the average estimate of four analysts surveyed by Thomson Financial. That is more than double what it earned in the second quarter. Diana's profit per share will be 18 percent higher in the final three months of the year, analysts said.
 
While the Baltic Dry Index, a benchmark for freight rates, has risen 49 percent in the past 12 months, the price for individual shipments has risen even more, at times, because of demand from China. BHP Billiton, the world's biggest mining company, in February paid ,250 a day to hire a ship to send 70,000 tons of Australian iron ore to China. Six months later, the company paid almost three-quarters more - ,000 a day - for the same voyage, according to the ship broker, Galbraith's, in London.
 
Chinese industrial production rose 16.7 percent in July, and the economy expanded 11.3 percent in the second quarter.
 
The iron ore, coal and coke that Chinese companies devoured this year fed record steel production. China produced 36.1 million tons of steel in July, up 22 percent from a year earlier, according to the International Iron and Steel Institute in Brussels. That increased demand for export and import shipments.
 
"The demand for iron ore and coal is pretty substantial, unless you think that the market in China is going to tank, which I don't think is going to happen," said Scott Black of Delphi Management in Boston who owns DryShips shares.
 
Still, most owners charter their ships on long-term contracts, and freight rates can swing wildly, reducing owners' ability to take advantage of the current surge.
 
By the time owners agree to their next one-year or two-year charters, daily hire rates could, based on historical price swings, have fallen by half or more. Owners earned ,902 a day, on average, in 2001, ,860 in 2002 and ,962 in 2003.
 
Genco, which did not hire out most of its ships on long-term contracts, is the biggest stock market gainer. Its shares have risen 34 percent since freight rates started rising in January.
 
Investors also are concerned that too many new ships are being built. But Black says the concern is overblown.
 
"This year will be the peak build rate," he said. "After that, the increase in demand outstrips supply. If you are a short-term investor, it probably doesn't make sense. If you have a two- or three-year horizon, it's pretty good."