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China’s crude oil imports decline after high inventory stocking
Since China has a rapidly growing economy with a large population of 1.35 billion people, China’s demand for energy is rising significantly. This demand plays a major role in the crude tanker industry.
Global automakers see China as a major source of growth now and in the future and are spending heavily to develop models for local tastes.
Five-year-old VLCC prices remained consistent, at $75 million, with the previous month’s levels. Year-over-year prices increased by 36%. Ten-year-old VLCC prices stood unchanged at $48 million and increased by 41.2% year-over-year.
Newbuild VLCCs (very large crude carriers) remained consistent or dipped marginally in July 2014, according to data from R.S. Platou—a leading international ship and offshore broking company.
In order to assess the industry’s future fundamental outlook, managers use the oil tanker orderbook as an important yardstick. It reflects the number of ships that have been ordered and the number of ships under construction.
Looking ahead, market prospects appear to be positive. A record grains season is expected. Also, the corn crop is expected to reach one billion tons. This will increase ship trade demand. Recent political developments in Indonesia will likely resume Safe Bulkers’ non-ferrous metal exports. This will restore trading activity in the Pacific.
For Panamax, the market is following a similar pattern as 2013. The average YTD charter stands at ~$8,100. It was $7,500 for the same period in 2013. Safe Bulkers is following lean operations and a low breakeven point. As a result, it will be the first company to make money when the market recovers.
The capital expenditures for the newly acquired 13 newbuild vessels—to be delivered through 2017—amounted to $351.9 million. Of the total amount, $37.7 million was scheduled to be paid in 2014, $162.6 million in 2015, $130.7 million in 2016, and $20.9 million in 2017.
Safe Bulkers’ management believes that it doesn’t want to over leverage the company. It wants to maintain a controlled debt level of ~50%. Also, it doesn’t want to issue shares at this point and dilute shareholders.
Safe Bulkers’ financing policy indicates comfortable leverage. It’s in compliance with financial covenants. It has a strong balance sheet that ensures financial flexibility.
Net income for 2Q14 recorded a significant slump of 91% to $2.1 million, or $0.01 per share—compared to $24.6 million, or $0.32 per share, in 2Q13. Earnings before interest, taxes, depreciation, and amortization (or EBITDA) for the quarter also plunged to $15.1 million from $36.1 million during the same quarter last year.
During the quarter, Safe Bulkers operated 31 vessels with a time charter equivalent rate of $11,642—compared to 26 vessels with time charter equivalent rate of $17,116 during 2Q13. The weighted average time charter equivalent of the Baltic Panamax (or BPI) and Baltic Capesize (or BCI) indices stood at $6,846 for 2Q14.
During 2013, ~21.7 million deadweight tons (or dwt) were scrapped. In the first half of 2014, ~7.4 million tons were scrapped—this is ~27% of the newbuild vessels that entered the market this year.
Safe Bulkers Inc. is a holding company. Its provides marine dry bulk transportation services internationally. It transports bulk cargoes—particularly coal, grain, and iron ore—along worldwide shipping routes.
Brazil accounts for almost 25% of global iron ore trade volume. It’s the second-largest iron ore exporting country. It’s also home to Vale, one of the largest mining companies.
Used by companies like BHP Billiton, Fortescue Metals Group, and Atlas Iron, the Hedland Port is one of the major exporting ports of iron ore in the world, representing about one-fifth of the global seaborne iron ore trade.
Since iron ore and metallurgical coal are primarily used to manufacture steel, China’s crude steel production is a key indicator that dry bulk shipping investors should watch.
The Baltic Dry Index measures the cost of major raw materials that are transported by sea in the global economy. Indicating a strict demand-and-supply price situation, the lower the cost to move goods by ship, the lower the amount of goods to ship.
With China being the largest importer of iron ore and the second largest importer for the coking coal used to make steel, a key material used to construct buildings in China, China’s real estate activity positively correlates with shipping demand.
You should consider that analysts use secondhand vessel prices to value dry bulk shipping companies like Diana Shipping Inc. (DSX), Knightsbridge Tankers Ltd. (VLCCF), Safe Bulkers Inc. (SB), and Navios Maritime Holdings Inc. (NM) in the stock market.