Rebound after a slow start

The year started on a very low note for the dry bulk shipping industry. The Baltic Dry Index (or BDI) fell to an all-time low of 509 in February 2015. Most of the dry bulk stocks fell to their 52-week lows. After that, the BDI began to recover, reaching 1,222 on August 5, or up 140% from February lows.

The iron ore shipments from Australia and Brazil, as well as grain exports from South America, have helped this recovery. Since 1Q15, Capesize and Panamax rates have moved up 300% and 150%, respectively.

NMM Management Conservative in Face of Slow Recovery in Dry Bulk

Price performance year-to-date

The Guggenheim Shipping ETF (SEA), the index that tracks the global shipping index, has returned 9.2% year-to-date (or YTD). Only Diana Shipping (DSX) has given positive returns of 12.8% YTD. Navios Maritime Partners LP (NMM), Safe Bulkers (SB), and Navios Maritime Holdings (NM) lost 10.1%, 8.3%, and 11.7%, respectively, in the same timeframe.

DryShips Inc. (DRYS) had the worst fall of all, at 52.2% YTD. The SPDR S&P 500 Trust ETF (SPY) covers the broader industry index.

NMM management’s take

Navios Maritime Partners’ management decided not to exercise an option to acquire a container vessel in June because it thought the credit environment was not optimal for risk-taking. The management comments also suggest that it does not plan to acquire any new vessels in dry bulk space anytime soon, as it believes 23 dry bulk vessels are enough to take part in the industry upturn.

This depicts NMM management’s overall conservative approach regarding the recent pickup in the dry bulk industry. However, company management maintained that the market rates are improving, and it does not believe that the historically low rate environment of 1Q15 is likely to repeat itself soon.

While the market has moved from all-time lows—led by the restocking-driven demand in China, grain season in South America, and high scrapping activity—the overall demand fundamentals remain weak. There is a large orderbook for dry bulk vessels for 2016, which in the face of deteriorating demand fundamentals might not let the dry bulk market move significantly higher. To learn more about dry bulk shipping industry fundamentals, please read Is the Current Dry Bulk Shipping Recovery Sustainable?

In the next part of this series, we’ll see what led to an earnings miss for NMM versus consensus expectations.

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