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2015: The Worst Year on Record for Dry Bulk Companies

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Dry bulk dynamics

The Baltic Dry Index (or BDI) is holding near all-time lows as rates for the bulkers continue to slump. The current rates are lower than the breakeven costs for most of the owners.

Most of the market participants, including the managements of the dry bulk companies, believe that high fleet growth and a weak Chinese (FXI) steel market will keep the lid on dry bulk rates for 2016 and maybe even for 2017. After that, the current order book will be delivered, and in the absence of significant new orders and continuing high demolition rates, the market might find a balance, although at a rate lower than previous highs. The consumption side has most likely gone in for a structural change as the Chinese economy shifts from investment-led growth to one driven by consumption.

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Beaten down stocks

With the dry bulk rates, dry bulk stocks are also reeling near their all-time low values. Navios Maritime Partners (NMM) has fallen 74% year-to-date (or YTD) until December 29). Safe Bulkers (SB), Scorpio Bulkers (SALT), Navios Maritime Holdings (NM), and Diana Shipping (DSX) have fallen by 77%, 63%, 62%, and 38%, respectively.

Series overview

In this series, we’ll be looking at key differences in terms of fleet type and fleet age, spot versus fixed exposure, financial and operating leverage, future plans, and the valuations for the five companies mentioned above. Investors can use this as a starting point to understand which companies could outperform or underperform based on these factors in the current weak operating environment of the dry bulk market.

Shipping companies make up 19.7% of the Guggenheim Shipping ETF (SEA). Investors interested in broad exposure to industrials can invest in the SPDR Dow Jones Industrial Average ETF (DIA).

In the next part, we’ll take a look at the fleet profiles for dry bulkers.

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