Star Bulk Carriers Corp.

In this part of our series, we’ll explore how steel demand from the construction, machinery, and infrastructure sectors could shape up in 2016.

Many market participants are forecasting a further fall in coal imports for China in 2016.

The demolition market for dry bulk carriers has been very active lately.

Though increased scrapping and minimal ordering activity could provide some relief on the supply side, the outlook for 2016 isn’t looking good for dry bulk.

If dry bulk demand picks up, Star Bulk Carriers (SBLK) with its large fleet would be in a position to capitalize on the upswing.

The BDI (Baltic Dry Index) is a leading indicator for the bulk shipping industry. It’s a measure of the cost of shipping major bulk commodities on a number of shipping routes.

Hedge funds like Caspian, Oaktree, and Monarch are going against the crowd by pinning their hopes on the assumption that SBLK’s share price has reached its floor.

Iron ore port inventories have been steady. For the week ending August 14, inventories were 81.5 million tons—an inventory-to-steel production ratio of 1.23x.

The bulk of the world’s seaborne iron ore exports come from Australia. According to customs data, Australia supplied 59% of China’s iron ore imports in 2014.

Newbuild vessel prices for all of the ship sizes remained constant in July 2015—compared to June 2015—according to data from Athenian Shipbrokers.

So far, 2015 has been a roller coaster ride for the dry bulk shipping industry. The Guggenheim Shipping ETF (SEA) has fallen by 12%.

China’s real estate climate index has been below 100 since October 2011. A slowdown in the Chinese real estate industry is negative for the iron ore import trade as well as for dry bulk shipping.

Iron ore exports from Port Hedland totaled 38.4 million tons in June. In May, exports totaled 38 million tons. So that’s a jump of 14.3% year-over-year and 1.1% month-over-month.

China’s final reading of the manufacturing purchasing managers’ index came in at 49.4. Factory activity in China has been below the 50 mark for the last four months.

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).

China’s HSBC manufacturing PMI fell to 48.9 in April. This is the lowest level since April 2014. A reading below 50 indicates contraction.

China consumes close to two-thirds of the global seaborne iron ore. In 2014, China imported 932.5 million tons of iron ore—13.8% more than in 2013.

If the orderbook level continues to fall more from this point and demand continues to grow, we could see some life in dry bulk shipping rates and equities.

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.

On a month-over-month basis, iron ore exports to China from Port Hedland increased marginally to 30.25 million tons in February 2015.

Shipments through Port Hedland represented 55% of Australia’s iron ore exports last year, and more than 80% of cargoes go to China.

Star Bulk believes the recent coal import restrictions were minimal, while the freight rate agreement signing between Australia and China can be a positive development.

Star Bulk management stated that commodity demand remains healthy, while substantial supply expansion has resulted in surpluses across various commodity markets.

This part covers Star Bulk’s cash flow numbers given the company’s rapid expansion of its fleet size through acquisitions and other related developments.

Star Bulk’s management fee income is at $0.3 million compared to $0.5 million for 3Q13, due mainly to a decrease in the number of vessels under management.

Due to rapid expansion, Star Bulk’s financing levels are higher compared to its industry peers.

Star Bulk’s depreciation and interest costs Star Bulk Carriers Corp.’s (SBLK) depreciation expense increased to $10.7 million for the third quarter of 2014, compared to $4.0 million for the third quarter of 2013. The increase was due to the increase in the company’s average number of vessels in its fleet and the corresponding increase in […]

For 3Q14, Star Bulk recorded total voyage revenues of $36.5 million compared to $17.3 million for 3Q13. This increase is due mainly to its growing fleet.

Star Bulk merged with Ocean Bulk in July, right after the high price levels of March weakened. It took advantage of even lower vessel prices in its Excel acquisition in August.

Star Bulk Carriers’ fleet includes 52 operating vessels, 16 second-hand vessels yet to be delivered, and 35 newbuilding vessels still under construction.

During the second half of 2014, Star Bulk Carrier Corp (SBLK) might experience a combination of healthy U.S. exports. If the estimated scenario is correct, the Panamax and Supermax will enjoy increased exports and significantly boost vessel demand.

Star Bulk Carriers Corporation (SBLK) remains confident that imports will produce strong ton miles growth during the medium term due to substitution of poor quality short-distance imports with high-quality long hauls.

Star Bulk (SBLK) believes that the substitution of expensive Chinese iron ore production with imported iron ore can provide a significant support to iron ore trade, even with zero steel production growth.

By using Newcastlemax vessels, Star Bulk Carriers Corporation (SBLK) experiences a significant reduction of dollar per ton cost on major routes during a high bunker environment. The benefits of eco are improving cash flow during a high-freight market and downside protection during a low-freight market.

Star Bulk’s vessel operating expenses totaled $8.1 million, compared to $6.8 million in year ago quarter. This was due to a higher average number of vessels in the second quarter of 2014 compared to the second quarter of 2013.

Going forward, Star Bulk Carriers’ (SBLK) focus remains on integrating the newly acquired fleet into its highly efficient platform. It will also continue to monitor and assess the market for further accretive growth opportunities.

Star Bulk Carrier’s (SBLK) acquisition from Excel Maritime is well-timed from a short-term and a long-term point of view. The company acquired Panamax/ Kamsarmax vessels at historically low prices, with Panamax vessel prices currently at the lowest level in 2014, a 21% decline compared to its peak in April.

In the merger, Star Bulk issued a total of 54.1 million common shares to the entities involved, of which 45.5 million shares (61.3% shareholding) were issued to Oaktree and 8.6 million (12.6% shareholding) were issued to Pappas shareholders.

Star Bulk Carriers Corporation (SBLK), a global shipping company focusing on the transportation of dry bulk cargoes, is en route to becoming the largest U.S. listed dry bulk shipping company.

Star Bulk’s fleet profile enables it to serve its customers in both major and minor bulk trades, and its vessels are able to trade worldwide in a multitude of trade routes carrying a wide range of cargo.

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.

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.

There’s no denying that debt is DryShips’ main concern going forward. The company’s debt stood at a total of $6 billion at the end of the first quarter, up around $500 million quarter-over-quarter.

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.

Meanwhile, total generation capacity stood at 1,251.22 gigawatts (or GW)—a 9.4% YoY increase.

June exports through the port increased 21% compared to the volumes last year.

With Indonesia having no intention of reversing its policy and few alternatives, year-over-year growth will likely continue to fall until the end of 2014.

As thermal power output growth has fallen, so has the growth for China’s coal imports from Indonesia and Australia—the two key countries that supply seaborne coal.

A survey by Bloomberg pointed out that traders and factories in China held about 29 million metric tonnes of nickel stockpiled at ports.

We’ve learned through previous research that week-to-week movements in the Baltic Dry Index don’t really have a strong relationship with week-to-week movements in dry bulk shipping stocks.

The BDI (Baltic Dry Index) is a widely followed metric that reflects the overall rates of moving dry bulk cargoes like iron ore, coal, and grain across water.

Loans play an important role in helping an economy grow by stimulating consumption and investment and creating greater overall demand.

China’s iron ore and coal imports are key factors that drive shipping rates. Iron ore and coal each account for nearly 30% of the world’s dry bulk trade volume.

According to Diana’s earnings call, Clarksons predicts that 2014 world seaborne imports of coking coal and thermal coal will increase by 5% and 4%, respectively.

Entering 2014, dry bulk shippers seem to be picking up their optimism again, which is clear in their recent activity purchasing new ships, despite the continuous fall of the Baltic Dry Index.

Unlike other industries, the performances of dry bulk shipping companies highly correlate. These companies are directly impacted by the world economy.

Investors should recall that the shipping industry is highly cyclical, as demand for fleets is driven by economic cycles and supply is inelastic for about two years—the time it takes to build vessels.

The sharp rise in the Baltic Dry Index that many analysts saw first in late August and second in November was in part driven by restocking activity of iron ore at Chinese ports.

Because vessel supply is inelastic, rates can shoot up given a small change in demand. This is shown as the sharp rise in the year-over-year change in the BDI in late 2013.

Recent movements between the BDI (Baltic Dry Index) and dry bulk shippers have some investors suggesting the BDI highly correlates with stock prices.

The dry bulk shipping industry is cyclical mainly due to economic or business cycles as well as a long lead time between the placement of orders and the delivery of new vessels.

Because reporting entities sometimes like to dress their numbers up a bit to look nice, analysts also look at electricity output—where government officials say they don’t have much incentive to cook the numbers.

Compared to iron ore and coal, the grain and oilseed trade makes up a much smaller part of overall dry bulk shipments—about 10%.

Coal (a fossil fuel) is another large category of dry bulk shipped by dry bulk shippers, comprising close to 30% of total dry bulk shipments.

Dry bulk shipping companies are rallying on Morgan Stanley’s review claiming that shipping is at the start of a two-year rally.