Time charter rates for dry bulk vessels have fallen considerably over the last few months. Capesize one-year rates have fallen by 40% in the last three months to $7,750 per day.
Diana Shipping is proactively investing in vessels to take advantage of the current low point for vessel valuation, and it can most likely outlast a prolonged downturn. So its valuation appears more or less full.
Navios Maritime Partners (NMM) cut dividends by 52% in its 3Q15 results given the weak outlook for the dry bulk industry. But even after a cut, it’s boasting of a yield of 30%+.
Since the market isn’t showing encouraging signs of a significant pickup next year, dry bulk companies might need to weather a prolonged downturn and manage their liquidity prudently.
Scorpio Bulkers (SALT) has the lowest financial leverage with debt-to-assets of 31.8% and debt-to-equity of 42.6% as of September 30, 2015. But this doesn’t give the full picture.
Navios Maritime Partners (NMM) and Diana Shipping (DSX) have a chartering strategy to charter the bulk of their vessels for the long term, thus holding high fixed-rate exposure.
In the current scenario of a weak dry bulk market, companies with lower operating expenses are preferred, since pressure on revenues makes operating leverages work negatively.
Scorpio Bulkers held an IPO in December 2013 and started to focus on only newbuild fleet. That’s the reason it has the youngest dry bulk vessel fleet with an average age of just 0.4 years.
Navios Holdings and Safe Bulkers have dividend yields of 8.8% and 1.3%, respectively. In contrast, Naviois Maritime Partners has an attractive 21% dividend yield.
Investors should take note of the short-term liquidity profile for dry bulk companies. In a weaker shipping rates environment, short-term liquidity could come under increasing pressure.
Major players in the dry bulk shipping space have taken a hard fall this year. SEA, an index weighted with dry bulk shipping companies, has lost 14.5% so far in 2015.
In this series, we’ll discuss some of the important metrics that drive the dry bulk shipping industry. Investors can gain exposure to commodities through the SPDR S&P Metals and Mining ETF (XME).
For Diana Shipping, contract rollover is a near to medium-term risk. Among its Capesize fleet, almost all of the 12 contracts will expire within about a year and a half.
For 1Q15, Navios Maritime Partners reported daily vessel operating expenses of $5,107. This is very low compared to 1Q15 expenses per day for DryShips and Diana Shipping.
In this article, we’ll look at the fleet profiles for the major dry bulk companies. Various classes of vessels are employed depending on volume, trade routes, and geographical limitations of ports.
Major players in the dry bulk shipping space have taken a hard fall this year. China’s appetite for iron ore and coal has waned, driving the current oversupply in the market.
The BDI (Baltic Dry Index) is a leading indicator for the bulk shipping industry. It rose for nine consecutive days to reach a level of 779 on June 19.
Based on shipping companies’ fixed operating expenses, we can estimate that current time-charter rates shouldn’t go down much further. We’re witnessing pretty much the floor at prevailing rates.
Navio Maritime Partners’ lower daily vessel operating expenses suggest that a larger share of revenue will be distributed to investors and the general partner.
Dry bulk shipping got a major boost from China’s increased appetite for iron ore and coal almost eight years ago. Large ship orders are driving the current oversupply.
Diana Shipping’s investment strategy is to preserve the strength and integrity of its balance sheet and gradually increase its leverage as asset values weaken.
According to Diana Shipping’s (DSX) management, world crude steel production reached 1.66 billion metric tons in 2014. It was up by 1.2% compared to 2013.
DryShips (DRYS) commented that its total dry bulk fleet’s compound annual growth rate for 2005 to 2014 stood at 9.1%. Its fleet increased by 4.4% in 2014.
In 2014, Chinese iron ore imports were up 14% YoY. Domestic iron ore production only increased by 5%. There are planned expansions for global iron ore mines.
History reveals that increases in world GDP growth generally led to increases in marine transportation rates. Since June 2014, crude oil prices fell 50%.
Navios Maritime Holdings (NM) is a global seaborne shipping and logistics company. It’s focused on the transport and transshipment of dry bulk commodities.
To date in 2015, the Guggenheim Shipping ETF, an index weighted with dry bulk shipping companies, increased 1.3%, while the Baltic Dry Index declined 28.3%.
For 2014, the total coal imports were 291.22 million tonnes—compared to 327.1 million tonnes in 2013. This was after many years of double-digit growth.
The National Bureau of Statistics revealed that the December crude steel output in China increased 7.6% to 68.09 million tonnes. Steel output was up 1.5% YoY.
On a weekly basis, vessel prices indicate the current trading prices of Capesize, Panamax, Supramax, and Handymax vessels. They also indicate the weekly changes.
China accounts for a major share of dry bulk commodities’ imports and exports. In the past three months, the Guggenheim Shipping ETF (SEA) dropped 6.1%.
Despite a decline in fuel prices, the Baltic Dry Index has recorded an approximate 40% drop since the start of November and a 62% decline year-to-date.
Looking ahead, many factors are likely to positively influence the shipping market and the companies that play in it. For example, India’s increasing appetite for coal has caused Capesize and Panamax rates to surge by 94% and 49%, respectively.
Orderbooks of Suezmax and Aframax fleets remain at manageable levels, with the majority of new orders due for delivery in the second half of 2016 or later.
George Economou, the company’s chairman, president, and chief executive officer, purchased $80 million, or 57.1 million shares of common stock at the public offering price. With this purchase, Economou increased his ownership in DryShips to 16.9%.
DryShips notes that it has significant leverage in the dry bulk and tanker spot markets. So, positive developments in these sectors will result in substantial cash flow to its bottom line.
China’s crude steel production is a key indicator that dry bulk shipping investors should watch. This is mainly due to iron ore primarily being used to manufacture steel.
Newbuilds versus second-hand vessel values Second-hand vessels are characterized by faster deliveries, so they reflect short-to-medium term fundamentals. Second-hand vessel prices tend to be more responsive to changes in current rates compared to newbuilds, which are affect by changes from industry turnarounds. On the contrary, buyers and sellers of newbuilds have to wait for almost two years […]
Growing construction activity in the global arena leads to significant demand for iron ore and coking coal, which expands the seaborne trade of these dry bulk commodities.
Coal trade saw significant changes over the past few years. China was a net coal exporter in 2009—only five years ago. Today, it’s the world’s largest importer.
NMM has multiple ways to grow its fleet size and distributions. Since its initial public offering (or IPO) in May 2007, the company grew its distribution by 26.4%.
Second-hand vessel values were led by quicker deliveries. Price movements in second-hand vessels tend to reflect industry participants’ expectations for medium-term fundamentals.
The Baltic Dry Index measures the cost of major raw materials. The raw materials are transported by sea in the global economy. It indicates a strict demand supply price situation.
China is one of the largest commodity importers in the world. China’s manufacturing and real estate sector remains a key driver of dry bulk trade throughout the world.
For the first seven months of 2014, 30.6 million deadweight tonnes (DWT) were actually delivered versus the projection of 47.6 million DWT. The non-delivery rate through July was about 36%.
In the past few years, the coal industry has undergone significant changes. China has become the world’s biggest importer of coal, formerly a net exporter of coal in 2009.
Navios Logistics is one of the largest logistics companies in the Hidrovia region of South America and the cabotage trades along the eastern coast of South America.
Navios Maritime Holdings (NM) chairwoman and chief executive Angeliki Frangou once again commented that the company has created a significant competitive advantage through its in-house technical and commercial management.
The stimulus measures introduced by China follow a string of weak economic data released in August. With higher credit available, China’s big banks are expected to channel funds into areas of economic importance.
DRYS has received firm commitments for a total of up to $520 million from ABN AMRO and Nordea Bank. This is the first major milestone towards the refinancing of the company’s 5% convertible notes maturing in December.
Formed in September 2004, DryShips Inc. (DRYS) is a global shipping transportation company. It offers ocean transportation services for dry bulk cargoes and crude oil worldwide.
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.
The Baltic Exchange Dry Bulk Index (BDIY) is a composite of rates for different ship sizes factoring in the average daily earnings of capsize, panama, supramax, and handysize dry bulk transport vessels.
DryShips Inc. (DRYS) and Navios Maritime Holdings Inc. (NM) are the two major market players in the dry bulk shipping industry—the industry has other players like Safe Bulkers Inc. (SB) and Knightsbridge Tankers Ltd. (VLCCF).
In regards to the management agreement, TMS Bulkers is entitled to a fixed management fee of $2,069 per vessel, per day, payable in equal monthly installments in advance.
Ocean Rig, a registered international offshore drilling contractor, provides oilfield services for offshore oil and gas exploration, development, and production drilling.
