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Why growth of developing economies supports the shipping industry
India and China continue to be the primary engines of trade growth. Developing economies are contributing a higher percentage of total world growth than developed economies. They also represent more than half of the global consumption of major commodities.
NMM’s debt-to-equity ratio was 75.49%—compared to the industry average of 128.29%. It’s peers, Navios Maritime Holdings (NM), DryShips (DRYS), Diana Shipping (DSX), and Navios Maritime Acquisition (NNA) recorded debt-to-equity ratios of 124.67%, 152.54%, 36.07%, and 252.7%, respectively.
RS Platou’s data revealed that the bulk carrier orderbook and the fleet capacity have been increasing. This supports industry growth.
Over the medium to long-term both the Panamax and Supramax sectors will likely receive support from Chinese coal and grain imports as the Northern Hemisphere grain season gets underway. Increased Chinese imports of bauxite and nickel may also support the smaller vessel sizes.
NMM currently has five container vessels of 6,800 TEU—namely Hyundai—in Hong Kong, Singapore,Tokyo, Shanghai, and Busan. The company’s recent container ship acquisition provided it an acquisition deal with a 6.2 multiple over five years.
Total assets for the quarter increased to $1.3 billion from $1.2 billion—reflecting the increase in fleet size. Long-term debt, including the current portion, decreased by $2.7 million, mainly due to repayment during the quarter. Net debt-to-asset value on a charter-adjusted basis decreased to 33.1% at the end of the second quarter.
Earnings before interest, taxes, depreciation, and amortization (or EBITDA) for 2Q14 increased by $9.1 million to $54.2 million from the same quarter last year. This was mainly due to the 77.3% increase in other income to $17.9 million.
Mined iron ore—sourced outside of Chinese mines—continues to be the lowest cost and highest quality source of commodity. With future iron ore prices forecasted to remain in the $100 per ton range, Chinese domestic production will likely become uneconomic.
Currently, NMM has fixed 91.5% of its available days for 2014. However, this falls to 55.9% for 2015. This leaves the company exposed to how the industry will perform in 2015. On the dry bulk vessels, NMM believes that they have positioned the company well to take advantage of the improving market.
For 2Q14, NMM recorded a 12.3% increase in revenue to $55.2 million from $49.4 million recorded in the same quarter last year. The increase was mainly due to the acquisitions of new vessels between September, 2013 and January, 2014.
Navios Partners operates 32 vessels with a total capacity of 3.3 million deadweight tons (or dwt). It has an average age of 7.3 years—lower than the industry average. Its fleet consists of 14 Panamax vessels, eight Capesize vessels, three Ultra-Handymax vessels, and seven container vessels.
At the end of the second quarter, NMM had total cash of $184.7 million. It had a total debt of $530.6 million. It will have a very low net debt or capitalization of 21.6% and no significant debt maturity until 2018.
Led by the 30% decline in spot iron ore prices since the start of 2014, almost 90 of domestic iron ore miners have stopped producing their relatively low quality iron ore as a result of the prevailing low prices.
With the exception of the Panamax order book, the rest of the ship sizes have witnessed increases in the order books over the last few months. The increases are the result of new interest and newbuilding contracting, witnessed last year and early this year.
According to the World Steel Association estimates, global steel use will increase by 3.1% to 1.53 billion metric tons in 2014. It will increase by another 3.3% in 2015 to reach 1.58 billion metric tons.
With lower spot rates, the company’s revenue would be negatively impacted. In contrast, with higher spot rates it would be supported. Also, with an efficient balance between supply and demand of vessels in the industry, the prices would be impacted.
Diana Shipping has invested almost $100 million into Diana Containerships over the past 12 months. Diana Shipping has invested through debt and equity. The company believes that there are more attractive opportunities and potential return in the containership sector.
For the 2Q14, DSX recorded total assets of $1.8 billion compared to $1.7 million in the same quarter last year. Cash and cash equivalents increased to $309.1 million from $240.6 million in the same quarter last year.
For 2Q14, Diana Shipping’s net loss stood at $5.7 million compared to $5.2 million from the same quarter a year ago. The marginal increase in loss was mainly due to a rise in the expenses during the quarter. It caused the fleet size to increase.
For the 2Q14, Diana Shipping recorded time charter revenues of $43.2 million, compared to $40 million for the same quarter in 2013. The increase was mainly due to an increase in ownership days, resulting from fleet expansion.