Sealand: Improvement in supply and demand drives the dry bulk shipping industry upward, and the freight rate center is expected to remain high.

Sealand's research report states that iron ore, coal, and grain occupy a core position in the long-term turnover of global dry bulk trade. In the short to medium term, multiple cargo types such as coal, grain, iron ore, steel, and cement support an upward demand trend. In the future, the withdrawal of old ships will hedge against the delivery of new vessels, resulting in limited effective capacity growth. Since 2026, the Baltic Dry Index (BDI) has shown a trend of "rising in May, adjusting in June, recovering in July, and increasing in August." Considering the demand growth driven by long-haul cargo releases along with limited supply, the firm believes that the central point of bulk shipping rates is expected to rise, maintaining a "Recommend" rating for the shipping and port sector. Sealand's main points are as follows: What are the profit drivers for dry bulk shipping? Demand per ton-mile as the basis, with elasticity coming from shipping rates. Dry bulk shipping mainly transports iron ore, coal, grain, and other cargo types. The firm believes that demand is determined jointly by shipping trade volume and route distance, while supply depends on fleet size and effective capacity; supply and demand changes together determine shipping rates, which further influence industry profit levels. Iron ore, coal, and grain occupy a core position in the long-term turnover of global dry bulk trade. What are the future demand trends? Multiple cargo types supporting upward demand in the short to medium term. Short term: A strong El Nio may increase the demand for coal to compensate for electricity needs and exacerbate hydrological constraints in the Panama Canal, coupled with the peak shipping season for North American grain, creating potential releases in coal and grain demand and routing flexibility. Medium term: New iron ore tonnage from West Pilbara and Vale will gradually come online, significantly amplifying the demand per ton-mile through long-haul cargo sources. If the total production from West Pilbara were shipped to China and fully substituted for Australian ore, the firm estimates this could bring an increase in dry bulk shipping demand of about 2.7%. Long term: The potential post-war reconstruction in Ukraine, Russia, and the Middle East provides an upward option for the transportation of raw materials such as steel and cement. What about future supply? The withdrawal of old vessels offsets the delivery of new ships, leading to limited effective capacity growth. According to Clarksons, the shipbuilding cycle for bulk carriers is about 3-4 years. As of August 2026, existing orders accounted for 14.2% of current capacity, with shipowners' willingness to build still at a low level; concurrently, vessels over 15 years old account for 34.8% of capacity and those over 20 years for 11.9%. Aging vessels face higher maintenance and operating costs. Given potential demolition and delivery rhythms, supply-side expansion is expected to be relatively moderate. What are the current trends in shipping rates? Continued upward shift in the central point, overall volatility rising. As of August 14, 2026, the BDI closed at 2863 points, a year-on-year increase of 40.1%. Although it fell by 7.3% week-on-week, it remains at a high level for the year. Since 2026, the BDI has exhibited a trend of "rising in May, adjusting in June, recovering in July, and increasing in August," primarily driven by the BCI; alongside the recovery of Australian and Brazilian freight and tightening regional capacity, the central point of shipping rates is expected to remain elevated. Investment recommendations Fujian Highton Development is undervalued with stable growth; it is advised to position at low levels. In the first half of 2026, Fujian Highton Development achieved a net profit attributable to the parent company of 523 million yuan, a year-on-year increase of 502.60%; overseas operations contributed the main profit, and the company's gross profit is highly correlated with the trend in shipping rates. According to Clarksons, as of August 15, 2026, the company owns 66 vessels and continues to expand under its "Hundred Ship Plan." The firm estimates that net profits attributable to the parent company from 2026 to 2028 will be 1.207 billion, 1.404 billion, and 1.620 billion yuan, respectively, corresponding to P/E ratios of 13, 11, and 10 times, maintaining a "Buy" rating for Fujian Highton Development. Considering the demand growth driven by long-haul cargo releases combined with limited supply, the firm believes that the central point of bulk shipping rates is expected to rise, maintaining a "Recommend" rating for the shipping and port sector. Risk warning: Demand for West Pilbara iron ore shipping may fall short of expectations, demand for coal, grain, and other cargo types may also be below expectations, industry capacity growth could exceed expectations, the company's capacity expansion may not meet projections, and the companys ship pricing may exceed expectations; risks from currency volatility; key attention should be given to the company's profit forecasts falling short of expectations; and the intensity of the El Nio effect may be less than expected.