Analyst sees shipping demand rebounding this year

Shipping activity slowed significantly, as anticipated, around the Olympics in Beijing. But demand did not rebound this month as was widely expected, Jefferies analyst Douglas Mavrinac said, because of a Chinese boycott of Brazilian iron ore.

Last week, an association representing the largest Chinese iron ore suppliers formalized a boycott against a major Brazilian supplier, as that company announced plans to hike prices to Asian customers by about 11 percent.

Mavrinac said he expects iron ore deliveries from Brazil to China will remain "limited" in the near future, but will need to increase as China runs of its own supplies of the commodity, used to make steel.

Until then, drybulk stocks and the heavily watched Baltic Dry Index will likely fall further, he said.

But possibly by as early as November, Mavrinac said the boycott should be lifted and drybulk trade--which also includes shipments of grain, coal and cement--should pick up.

The analyst even predicts that the Baltic Dry Index, which measures drybulk shipping rates on 40 routes across the world, might return to record levels it set in May.

The index, managed by the Baltic Exchange in London, closed down 242 points Monday at 3,504. It has declined since hitting an all-time high on May 20 of 11,793.

And Mavrinac said that shipping demand and the potential jump in drybulk stocks will likely grow even stronger as the credit crisis spreads. The analyst notes that shaky financial markets are making it difficult for shipowners to finance the building of new ships, so the 2010-influx that was expected will likely be limited, keeping demand high.

Most drybulk stocks sank by double-digit percentages and set fresh year-lows Monday, as the U.S. House of Representatives failed to pass the $700 emergency bailout package designed to ease quickly spreading financial woes.