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Pacific Basin Surges on Bulk Rates Optimism: Hong Kong Mover

Pacific Basin Shipping Ltd., Hong Kong’s biggest operator of commodity vessels, rose to the highest in three months on speculation an increase in vessel scrapping may spur a recovery in rates.

The carrier climbed 3.3 percent to close at HK$3.77 in Hong Kong trading, the highest price since Oct. 17. China Shipping Development Co Ltd., part of the nation’s second-largest shipping group, advanced for a fifth day, gaining 3 percent to close at HK$5.57 as of 4 p.m. in Hong Kong.

Dry-bulk operators may accelerate ship-scrapping this year after a global glut helped push the Baltic Dry Index, a benchmark for rates, to the lowest in three years, according to Samsung Securities Co. analyst Timothy Ross. Rates may also rebound following the end of this week’s Lunar New Year holidays in China, the biggest customer for ships used to haul iron ore, coal and other commodities, he said.

“Expectations of an index recovery on a rebound in demand post the Chinese New Year and a scrapping-led moderation in supply have encouraged investors to take risks on high beta stocks like the dry-bulk sector,” he said.

Ross raised his ratings on Pacific Basin and Shanghai-based China Shipping Development to ‘buy’ from ‘sell’ in a Jan. 18 note. Pacific Basin has gained 13 percent since the close of trading the day before the note, while China Shipping Development has jumped 20 percent.

The Baltic Dry Index has fallen 52 percent this year to 784 because of the Chinese holidays, poor weather in export markets such as Australia and acceleration of vessel deliveries, Ross said. Steel mills and other Chinese factories close for at least a week around the Lunar New Year holidays, which started Jan. 23.

The index may rebound to 2,000 by the beginning of the second half of the year as declining rates, rising fuel costs and scrap metal prices at a decade-high may prompt shipowners to retire vessels, Ross said in the Jan. 18 note. About 25 percent of the global dry-bulk fleet is more than 20 years old, he said.

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