Worst year on record for dry bulk
So far, 2015 has been the worst year on record for the dry bulk shipping industry. After the BDI (Baltic Dry Index) fell to a record low of 509 on February 18, 2015, market participants got concerned about the industry’s future. However, after there was a little strength in July and August, the market thought that worst might be over for dry bulk shipping. However, the BDI reached a recent all-time low of 498 on November 20. This reflected deep-rooted problems in the sector.
Dry bulk stocks are under pressure
Even for individual companies, 2015 looks like a year to forget. Most of the players in the dry bulk shipping space fell since the beginning of the year. DryShips (DRYS) fell the most by 86% YTD (year-to-date) as of November 20, 2015. Its very high leverage in a weak rate environment caused it to take drastic measures including distressed selling of vessels. This resulted in a drastic fall in the share price YTD.
Star Bulk Carriers (SBLK) followed DryShips. It returned -84%. Navios Maritime Holdings (NM) forms 2% of the Guggenheim Shipping ETF’s (SEA) holdings. Navios Maritime Holdings and Safe Bulkers (SB) fell by 64% and 68%, respectively, YTD.
To understand the current weakness in the dry bulk shipping industry, it’s important to understand the supply-side and demand-side dynamics that are driving it. On the demand side, iron ore and coal trade are the industry’s most important determinants. China leads the demand. While we’ll discuss these drivers in detail throughout our series, it’s important to note that China’s economic weakness is reflected in its weaker demand for commodities. This impacts seaborne trade.
In contrast, the supply side remains healthy. This is due to vessel deliveries from the orders placed 2–3 years ago when things were looking up in China and elsewhere.
In this series, we’ll discuss some of the important metrics that drive the dry bulk shipping industry. First, we’ll analyze the dry bulk shipping market’s medium and long-term outlooks by studying vessel prices for newbuilds and secondhand vessels. Then, we’ll analyze China’s (FXI) (MCHI) manufacturing, industrial, and credit activity. We’ll also discuss iron ore and coal imports and exports among significant trading economies.