Outlook: 2014’s seaborne dry bulk supply and demand balance
Diana Shipping Inc. (DSX) wasn’t the only one last week to report missed estimates. So did DryShips Inc. (DRYS) and Navios Maritime Holdings Inc.’s (NM). While missed earnings led to a selloff, what’s more important is the fundamental outlook and how that changes over time. Besides, what can you really do when earnings miss and the stock suddenly drops 7% to 12%?
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George Economou of DryShips Inc. (DRYS) was pretty optimistic, commenting, “We are very excited about the prospects of the shipping markets. Following a period of oversupply the recent volatility in the tanker and drybulk sectors is a clear sign of a balanced supply-demand picture.”
The Capesize fleet, primarily used to haul iron ore and coal across long voyages, is expected to grow 4.9% in 2014 and 4.0% in 2015, according to DryShips. That would be significantly below the ten-year average growth of 12%. Panamax fleets, on the other hand (used to transport iron ore, coal, and grain) are expected to grow 9.3% in 2014 and 3.7% in 2015, compared to the ten-year average fleet growth of ~9%.
Preliminary data suggests the global dry bulk trade grew 6% in 2013 on a volume basis, according to Navios Maritime Holdings. Factoring in the longer distance that vessels had to travel, ton-mile demand for dry bulks grew 7%. Based on discussions at Navios and Diana, supply grew 5% to 6% in 2013. As demand outpaced supply, shipping rates and fleet utilization rose last year, driving up the Baltic Dry Index.
Demand for dry bulk cargo in 2014 is expected to increase 6% this year (2014), while supply growth is expected to come in lower. Even Diana, which was and has been more cautious or less optimistic, said 2014 will likely be “more rewarding for owners than last year.” So long as these projections materialize, we should see shipping rates and the Baltic Dry Index continue to show positive growth on a year-over-year basis. But if they don’t, we could see shipping rates fall.