MITSUI OSK a Contrarians Delight

As contrarians we are always scanning the globe for the toxic leftovers of disgruntled long term investors. In particular we are always interested in news that justifies the horrors of what has already happened to an industry. A few days ago Bloomberg ran this story on shipping rates, and by implication the outlook (or lack thereof) for shipping stocks:

Shipping Rates Seen Falling 50% on China, Fleet Size

Aug. 31 (Bloomberg) — Just as global trade starts to recover, the shipping market is crashing for the second time in a year as China reduces raw-material imports and record numbers of new vessels set sail.

The rate for leasing capesize ships, boats three times the size of the Statue of Liberty, will drop about 50 percent from the current price of $37,865 a day to as low as $18,000 before the end of the year, according to the median in a Bloomberg survey of six analysts and fund managers.

Shipping rates, which already fell 59 percent from this year’s high, are retreating as the Organization for Economic Cooperation and Development predicts a 16 percent drop in world trade for all of 2009. China’s State Council called for curbs on steel and cement production last week. A record 146 capesizes will be added this year, equal to 28 percent of the fleet, according to Fearnley Consultants A/S.

Well that little worthy news item should have pummelled shipping stocks, but it seems to have had little effect. Shipping stocks (as per the ETF SEA) remained virtually unchanged despite this “news” item which would appear to be a bullish sign. One stock that we are very interested in is the Japanese shipping company MITSUI OSK which is one of the worlds’ largest shipping companies, its behaviour holds important signals for not only the Japanese trade but also global trade:

A break above ¥700 would signal a bullish breakout and would have important ramifications for US shipping stocks. We think that it is only a matter of time before that breakout comes and when it does we will happily add it to the contrarian trades we already have on.