Should DryShips (NASDAQ:DRYS) stocks be up for Grabs?

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By Hanson So on October 17, 2014 Intl News

DryShips (NASDAQ:DRYS) is a dry bulk shipping company located in Athens, Greece. The company was founded in 2004 and since then it has come a long way, in terms of it carriers’ service. To date, it has 9 Capesize, 25 Panamax, and 2 Supramax vessels. DryShips (NASDAQ:DRYS) also owns 11 semi-submersible oils rigs, 2 fifth generation ultra-deepwater, offshore drilling rigs, ultra deepwater drillships and a numerous number of 6^th and 7^th generation ships. DryShips (NASDAQ:DRYS) is a big name in the shipping market.

Recent Wall Street news showed that DryShips (NASDAQ:DRYS) shares closed on Wednesday with a 7.43% increase. OceanRig (NASDAQ: ORIG) is an operator which is 59.4% owned by DryShips (NASDAQ:DRYS). As both trade in the same direction, their stocks are pretty much dependent on each other. But surprisingly, the market value of Ocean Rig (NASDAQ: ORIG) seems to be falling.

This over 7% rise in the share indicates that investors focused on the dry shipping sector, aimed at driving its shares up. Another factor might be profit taking from short sellers.

Recent news has put light on iron ore production on a massive scale and its shipment on an even greater measure. This created doubts amongst several people, that Rio Tinto (NYSE:RIO), the iron producing company, is trying to lower iron prices by producing it at a much larger scale then is in demand. This might be considered as good news for the shipping market, as most of their profit is dependent on the large scale of iron ore shipments sent to China. Much of China’s iron ore mines have stopped extraction as its cost exceeds the sales or profits of the iron ore, and as the prices continue to fall in other regions, China will be tempted to import the iron instead of producing it. Hence an increase in the shipment has been seen, leading to increase in shipping demand. This is projected to be significant for companies like DryShips (NASDAQ:DRYS), as it gives them the opportunity to extend their reach to the Chinese market.

Past speculations show that even though China demands over 70% of the world’s existing iron, its actual need for iron is much less. Earlier, figures showed that in 2013; China imported 820 tons of iron and produced 1424 tons, locally. Altogether, it rounds up to huge amounts of the metal that may not entirely be of use to the country. So, if China continues to fully depend on foreign miners for iron import, it would mean a huge increase in shipment demand by over 37% and also give rise to shipping rates by a huge margin.

So now the question that arises is that would it be profitable to invest in the company’s share at this point or more research needs to be conducted? As certain patterns indicate future success by a large scale but this could just be a market movement that is temporary. Hence, the huge Chinese demand for iron ore may help shipment companies like DryShips (NASDAQ:DRYS) to enhance business.