[Click eStock] "Pan Ocean, Beneficiary of Reopening and Energy Crisis"

Korea Investment & Securities Report

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintained its buy rating and target price of 9,400 KRW for Pan Ocean on the 26th. This is based on the judgment that the value of dry bulk carriers could increase due to the reopening phase and the energy crisis.

This month, the Baltic Dry Index (BDI) surpassed 5,000 points for the first time in 13 years and is currently recording mid-4,000 points. However, Pan Ocean's stock price is undergoing a correction amid doubts about sustainability as the index continues to rise.

Choi Go-woon, a researcher at Korea Investment & Securities, said, "Even within the same shipping industry, the dry bulk market differs from containers in that it did not benefit much from the pandemic's reflexive gains. Instead, the benefits from the upcoming reopening and the energy crisis are more important momentum for bulk shipping," adding, "Container freight rates have limited room for further increases, but the BDI is expected to break its record high next year."

This year, the BDI's rise due to COVID-19 has been overestimated. The logistics crisis caused by the pandemic began mainly in advanced countries such as the United States and Europe, and its impact on the dry bulk market, which transports raw materials, has been minimal. Unlike containers, which benefited from contactless consumption, bulk cargo volumes still remain below pre-pandemic levels.

Researcher Choi said, "China's power shortage is also unfavorable for container demand, but like the sharp rise in energy prices, it is an opportunity factor for bulk carriers," adding, "Since environmental regulations without alternatives have limitations in suppressing raw material demand, a reevaluation of coal and iron ore demand will take place."

Pan Ocean is a beneficiary of inflation due to rising energy prices and logistics costs in 2022. Although decarbonization policies have been strengthened since the pandemic, realistic alternatives are still insufficient. The dry bulk market is similar. Environmental regulations such as China's steel production cuts are expected to cause more supply contraction, such as scrapping due to stricter eco-friendly ship standards, than damage to demand. Researcher Choi explained, "New ship orders over the past two years accounted for only 6%, so the supply-demand balance is expected to remain positive until 2023."