By Katie Dale • Oct 15, 2014 11:58 am EDT
Baltic Dry Index
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. When the cost to move goods by ship is lower, there are less goods to ship.
Enlarge Graph
The Baltic Exchange Dry Bulk Index is a combination of rates for different ship sizes. It factors in the average daily earnings of Capesize, Panamax, Supramax, and Handysize dry bulk transport vessels. Most of the vessel classes that make up the Index are at their lowest level for this time of year—since at least 2006. Capesize ships are an exception. They’re used to carry iron ore or coal cargoes of ~150,000 deadweight tonnage (or DWT).
September performance
The Baltic Dry Index recorded a decreased percentage in trading to 1,063 on September 30, 2014, from 1,151 at the beginning of the month. So far in October, the Index decreased more to 1,029 as of October 6, 2014. Capsizes pulled down the Index by the maximum rate. on a year-over-year (or YoY) basis, the Index recorded a decreased percentage from 2,115 on October 7, 2013. Since October 2, the iron ore ship charter cost—charter cost to ship iron ore—declined the most.
Impact on companies
How the Baltic Dry Tanker Index performs, especially its YoY growth, is one factor that has significant implications for dry bulk companies.
Historical trends suggest strong third and fourth quarters. Investors should watch the Index for any rate of increase.
As a result, the following dry bulk companies—like Star Bulk Carriers Corp. (SBLK), Safe Bulkers Inc. (SB) Baltic Trading Inc. (BALT), and Knightsbridge Tankers Ltd. (VLCCF), and the Guggenheim Shipping ETF (SEA)— could benefit in the short-term.
However, if the YoY changes remain in the negative, then the long-term outlook for these companies will remain in the negative. So, what are some of key factors that affect the Baltic Dry Index? We’ll discuss this in the next part of the series.
Visit the Market Realist Marine Shipping page to learn more.
BALT $3.40 -$0.12 -3.27%
SB $5.44 $0.18 3.42%
SBLK $9.31 $0.52 5.92%
SEA $18.72 $0.48 2.63%
VLCCF $7.25 $0.87 13.64%
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Must-know: An overview of dry bulk shipping indicators
Part 123456789101112Part 13Marine Shipping (1058)
Must-know: An overview of dry bulk shipping indicators (Part 1 of 13)
Must-know: Dry bulk shipping players and performance
By Katie Dale • Oct 15, 2014 11:57 am EDT
Dry bulk shipping industry
The dry bulk shipping industry is affected by numerous factors—like world economies’ growth and commodity supply and demand. Considering the various world economies, China’s economic growth rate impacts dry bulk shipper’s movement. China is an important commodity market.
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The sell-off
Since the beginning of September 2014, dry bulk shipping companies—like Navios Maritime Holdings Inc. (NM), DryShips Inc. (DRYS), Knightsbridge Shipping Ltd. (VLCCF), and Safe Bulkers Inc. (SB)—have all suffered great losses.
NM fell by 47%. DRYS fell by 42.9%. VLCCF fell by 41.8%. SB fell by 35.8%.
The Guggenheim Shipping ETF (SEA) tracks a variety of major shipping companies worldwide. It fell by 17.8%. It underperformed the S&P 500. The S&P 500 decreased by 4.8%.
Important indicators
Why have these dry bulk shipping companies fallen so much over the last few months? What do the industry fundamentals look like? We’ll use key indicators to help us answer these questions throughout this series.
The dry bulk shipping companies transport dry bulk—like iron ore, coal, and grain—around the world using vessels.
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.
At an industry level, iron ore exports out of Australia and Brazil are key data points to follow. Since coal is used to generate electricity, we’ll take a look at China’s recent thermal power output trends.
To gauge industry players’ sentiment and expectations of the industry outlook, we’ll look at newbuild and second-hand vessel prices. We’ll look at the Capesize and Panamax vessels in particular. We’ll also look at ship ordering activities.
We’ll provide the Baltic Dry Index’s fourth quarter outlook. We’ll also discuss analyst opinions on dry bulks—provided by RS Platou.
We’ll start by looking at the Baltic Dry Index. It’s an Index that reflects the overall rate of transporting dry bulks on water.
Click here to learn more about the dry bulk shipping industry.
DRYS $1.76 $0.17 10.69%
NM $5.00 $0.14 2.77%
SB $5.44 $0.18 3.42%
SEA $18.72 $0.48 2.63%
VLCCF $7.25 $0.87 13.64%
There are no shortcuts to investing.
But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.
I Agree
PART 2
Must-know: An overview of dry bulk shipping indicators (Part 2 of 13)
Why the Baltic Dry Index is decreasing
By Katie Dale • Oct 15, 2014 11:58 am EDT
Baltic Dry Index
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. When the cost to move goods by ship is lower, there are less goods to ship.
Enlarge Graph
The Baltic Exchange Dry Bulk Index is a combination of rates for different ship sizes. It factors in the average daily earnings of Capesize, Panamax, Supramax, and Handysize dry bulk transport vessels. Most of the vessel classes that make up the Index are at their lowest level for this time of year—since at least 2006. Capesize ships are an exception. They’re used to carry iron ore or coal cargoes of ~150,000 deadweight tonnage (or DWT).
September performance
The Baltic Dry Index recorded a decreased percentage in trading to 1,063 on September 30, 2014, from 1,151 at the beginning of the month. So far in October, the Index decreased more to 1,029 as of October 6, 2014. Capsizes pulled down the Index by the maximum rate. on a year-over-year (or YoY) basis, the Index recorded a decreased percentage from 2,115 on October 7, 2013. Since October 2, the iron ore ship charter cost—charter cost to ship iron ore—declined the most.
Impact on companies
How the Baltic Dry Tanker Index performs, especially its YoY growth, is one factor that has significant implications for dry bulk companies.
Historical trends suggest strong third and fourth quarters. Investors should watch the Index for any rate of increase.
As a result, the following dry bulk companies—like Star Bulk Carriers Corp. (SBLK), Safe Bulkers Inc. (SB) Baltic Trading Inc. (BALT), and Knightsbridge Tankers Ltd. (VLCCF), and the Guggenheim Shipping ETF (SEA)— could benefit in the short-term.
However, if the YoY changes remain in the negative, then the long-term outlook for these companies will remain in the negative. So, what are some of key factors that affect the Baltic Dry Index? We’ll discuss this in the next part of the series.
Visit the Market Realist Marine Shipping page to learn more.
BALT $3.40 -$0.12 -3.27%
SB $5.44 $0.18 3.42%
SBLK $9.31 $0.52 5.92%
SEA $18.72 $0.48 2.63%
VLCCF $7.25 $0.87 13.64%
PART 3
Must-know: An overview of dry bulk shipping indicators (Part 3 of 13)
Why China’s PMI had modest growth levels in September
By Katie Dale • Oct 15, 2014 11:58 am EDT
The importance of China’s PMI
China’s Federation of Logistics and Purchasing revealed that China’s official manufacturing Purchasing Managers Index (or PMI) for September didn’t change from August. The PMI was modest at 51.1. This suggests that economic growth has more or less stabilized. An indication above 50 shows expansion in manufacturing activity.
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The dry bulk shipping industry is driven by China’s growth levels. As a result, companies like Safe Bulkers Inc. (SB), Knightsbridge Shipping Ltd. (VLCCF), Navios Maritime Holdings Inc. (NM), DryShips Inc. (DRYS), and the Guggenheim Shipping ETF (SEA) should take September’s data as a positive.
PMI components
September indicated a mixed bag. The subindex measuring production edged up to 53.6 in September from 53.2 in August. The new export orders subindex also increased to 50.2 from 50. This was its fastest pace since March 2010. Meanwhile, output growth slowed down more from July’s 16-month high.
The new orders subindex fell to 52.2 from 52.5. The gauge measuring business expectations also fell.
Going forward
Industry analysts believe that the Chinese authorities will continue to rely on targeted measures to offset some of this economic pressure. They will rely on targeted measures if conditions among small companies deteriorate more. Small companies are key employment drivers. Also, HSBC commented that growth risks are still on the downside. They need more accommodative monetary and fiscal policies.
Zhang Liqun, an analyst with CFLP, said in a statement that “business confidence remains weak and economic growth still faces downward pressure.”
Click here to learn more about dry bulk shipping.
DRYS $1.76 $0.17 10.69%
NM $5.00 $0.14 2.77%
SB $5.44 $0.18 3.42%
SEA $18.72 $0.48 2.63%
VLCCF $7.25 $0.87 13.64%
PART 4
Must-know: An overview of dry bulk shipping indicators (Part 4 of 13)
Why Port Hedland’s iron ore export narrowed in September
By Katie Dale • Oct 15, 2014 11:59 am EDT
Port Hedland’s iron ore export
Australia accounts for a large percentage of the world’s iron ore seaborne exports. The exports are used by companies like BHP Billiton, Fortescue Metals Group, and Atlas Iron.
The Hedland Port is one of the major iron ore exporting ports in the world. It represents about one-fifth of the global seaborne iron ore trade. The majority of Australia’s approximately 400 million tonnes (or mt) of iron ore exports are shipped from Port Hedland and the Port of Dampier.
Shipments through Port Hedland represented 55% of Australia’s iron ore exports last year. More than 80% of the cargo goes to China.
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September dip from record levels
Total September shipments recorded 36.3 million tons. It recorded levels of 37.4 million tons in August. It recorded 29 million tons last year in September.
China’s iron ore shipments, from Australia’s Port Hedland, declined from its record levels. This was a result of speculation demand. It could ease amid slowing economic growth. For September, shipments stood at 29.8 million tons. There was a record of 32 million tons in August. There were 23 million tons in September 2013.
Price change affecting production
Raw material prices that are used to make steel slumped 41% in 2014. BHP Billiton Ltd. (or BHP) and Rio Tinto Group (or RIO) expanded supplies. This pushed the market into a glut. Also, there was slowing demand growth in the biggest buyer of the commodity—China. In September, Australia’s state forecaster cut its price estimates for 2014 and 2015. The state forecaster predicted more high-cost producer closures.
Going forward
According to industry analysts, mills hold enough finished steel stocks. Buyers aren’t willing to purchase significant quantities of iron ore. However, BHP commented that it expects to see healthy mid-term iron ore demand growth from China. By the early to mid-2020s, Chinese steel production is expected to increase by ~25%. It should increase to between one billion and 1.1 billion tons.
The year-over-year (or YoY) increase in the iron ore export data from Port Hedland will likely support dry bulk shippers’ performance. Dry bulk shippers include Star Bulk Carriers Corp. (SBLK), Safe Bulkers Inc. (SB) Baltic Trading Inc. (BALT), and Knightsbridge Tankers Ltd. (VLCCF), and the Guggenheim Shipping ETF (SEA).
Click here to learn more about iron ore prices.
BALT $3.40 -$0.12 -3.27%
SB $5.44 $0.18 3.42%
SBLK $9.31 $0.52 5.92%
SEA $18.72 $0.48 2.63%
VLCCF $7.25 $0.87 13.64%
There are no shortcuts to investing.
But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.
I Agree
PART 5
Must-know: An overview of dry bulk shipping indicators (Part 5 of 13)
Why Brazil’s iron ore export is on a roll
By Katie Dale • Oct 15, 2014 12:00 pm EDT
Brazil’s impact on dry bulk
Brazil accounts for ~25% of the market share of global iron ore trade volume. It’s the second largest iron ore exporting country. Brazil has one of the largest mining companies—Vale.
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Shipments from Brazil are a key metric for investors to watch. Higher export volumes have a positive impact on shipping rates. Shipping rates are a critical variable.
The rates move dry bulk shipping companies’—like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Navios Maritime Partners LP (or NMM), Navios Maritime Holdings Inc. (NM), and Safe Bulkers Inc. (SB)—revenues, earnings, cash flows, and share prices. The Guggenheim Shipping ETF (SEA) tracks these companies.
September is on a roll
For September, Brazil’s total iron ore shipments surged 17.04% year-over-year (or YoY) to $33.08 million tons. on a quarter-over-quarter basis there was a 14% increase compared to September 2013. This is according to the data released by the Brazilian Ministry of Development, Industry, and Foreign Trade.
For January through August, the combined iron ore exports from Port Hedland and Brazil suggested a massive 102.4 metric ton increase—compared to the same period in 2013. The total is 490.4 metric tons.
In September, Brazilian iron ore exports increased to their highest level since December 2011. The iron ore exports were 33.1 metric tons in September. According to official data, the exports were up 4.1 million tons compared to September 2013.
Meanwhile, total iron ore shipments from January through September were 249.3 million tons. This is up 14.9 million tons compared to the same nine months last year.
Moving forward
The latest estimate for Brazil’s iron ore exports was provided in September. Brazil’s iron ore exports are expected to increase 10% to 362 million tons this year. Also, in the medium term, Brazil’s exports are projected to average 6% growth. The exports should increase to 489 million tons by 2019.
For the short and medium term, iron ore imports from Australia and Brazil are expected to fill a greater share of China’s domestic iron ore requirements.
Click here to learn more about China’s iron ore inventory.
DRYS $1.76 $0.17 10.69%
DSX $8.46 $0.21 2.61%
NM $5.00 $0.14 2.77%
SB $5.44 $0.18 3.42%
SEA $18.72 $0.48 2.63%
PART 6
Must-know: An overview of dry bulk shipping indicators (Part 6 of 13)
Why China’s real estate sales decreased from January to August
By Katie Dale • Oct 15, 2014 12:01 pm EDT
China’s real estate sales
China’s real estate sector is a key component of the country’s economic activity. It accounts for ~20% of its gross domestic product (GDP). This includes steel and construction equipment.
Historically, changes in real estate activity have trended with the overall economy. China is the largest iron ore importer. It’s the second largest coking coal importer. Coking coal is used to make steel. Steel is a key material. China uses steel to construct buildings. China’s real estate activity is connected with the shipping demand.
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September climate index
For August 2014, China’s real estate climate index was 95. It was consistent with the levels from previous months and last year. The composite index was developed by China’s National Bureau of Statistics. It measures the aggregate business activity for land, capital, and real estate sales. Figures above 100 show prosperity or economic growth. Figures below 100 mark depression.
Home sales from January through August
For the first eight months of 2014, China’s housing sales dropped 10.9% to $559 billion, according to data from the National Bureau of Statistics. The data was issued Saturday. There have been bulging inventories and tight credit conditions since the beginning of the year. This dented the property market.
There were new construction starts from January through August. Measured by area, the new construction fell 10.5% to 1.14 billion square meters—compared to a 13.5% growth in 2013.
Outlook
There were falling new construction starts. However, most of China’s property dealers commented that they expect to sell the bulk of their inventories in September and October. These months are usually the peak months for property sales.
Also, more than 30 local governments have loosened property restrictions—for example, limits on second home purchases. This could support dry shipping companies like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Knightsbridge Tankers Ltd. (VLCCF), Navios Maritime Partners LP (or NMM), Eagle Bulk Shipping Inc. (EGLE), and the Guggenheim Shipping ETF (SEA).
Meanwhile, buyers face a risk. They expect prices to fall more on rising inventories.
Click here to learn more about real estate activity and how it impacts dry bulk shippers.
DRYS $1.76 $0.17 10.69%
DSX $8.46 $0.21 2.61%
EGLE $15.90 $15.22 2238.24%
SEA $18.72 $0.48 2.63%
VLCCF $7.25 $0.87 13.64%
PART 7
Must-know: An overview of dry bulk shipping indicators (Part 7 of 13)
China’s thermal power output recorded a downfall
By Katie Dale • Oct 15, 2014 12:01 pm EDT
China’s thermal power output
Rising pollution is a major concern for the Chinese economy. It’s also dealing with excess debt and capacity. As a result, the Chinese government placed greater emphasis on environmental sustainability. People are encouraged to wear masks outdoors and to stay indoors.
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Power consumption decreases
China’s power consumption in August was 502.5 billion kilowatt hours (or kWh). This was a decline of 1.5% from the levels last year. The decline was mainly led by a slower economy and milder temperatures. The data was provided by the National Energy Administration.
For the first time in four years, power generation recorded a decrease in August. There was a drop in industrial consumption because of a slowdown in domestic economic growth. This caused the power consumption to fall. Industrial output growth was down 2.1 percentage points month-over-month (or MoM) to 6.9%.
A Deutsche Bank report revealed that thermal coal, used by six major coastal electric utilities in China, showed that consumption declined by 23% during August and September—compared to the same period last year.
For the first eight months this year, power consumption increased 4% year-over-year (or YoY) to 3.64 trillion kWh.
Power output is decreasing
For August, the overall power output declined 2.2% YoY—compared to an increase of 3.3% in July. Due to the consistent rainfall since July, hydropower output surged 37.2% YoY. Thermal power output was squeezed by hydropower. It recorded an 11.3% YoY decrease.
2014 estimates
China’s government increased its emphasis on pollution. Also, China’s at a stage where growth transitions from an infrastructure-led economy to a consumption-driven economy. It’s investing in renewable energies, nuclear power, and natural gas. This is expected to take on a wider role.
In July, the China Electric Council cut its forecast for power consumption growth in 2014. It cut it to 5.5%–6.5%. The power consumption was down from its February estimate of 7%. It had an increase of 7.5% in 2013.
China’s thermal power output growth is at risk. It impacts the seaborne coal trade and dry bulk shipping companies—like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Safe Bulkers Inc. (SB), Knightsbridge Shipping Ltd. (VLCCF), and the Guggenheim Shipping ETF (SEA).
DRYS $1.76 $0.17 10.69%
DSX $8.46 $0.21 2.61%
SB $5.44 $0.18 3.42%
SEA $18.72 $0.48 2.63%
VLCCF $7.25 $0.87 13.64%
There are no shortcuts to investing.
But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.
I Agree
PART 8
Must-know: An overview of dry bulk shipping indicators (Part 8 of 13)
Why the dry bulk orderbook expanded slightly in September
By Katie Dale • Oct 15, 2014 12:02 pm EDT
Ship orders
The number of ships on order is a measure that reflects managers’ expectations of future supply and demand differences. When managers don’t purchase new ships, it indicates that future supply will increase more than demand. When demand is expected to outpace supply growth, companies return to the shipyard to place new orders. They expect to generate profits with the new vessels. So, rising ship orders usually indicate that shipping rates will rise.
Enlarge Graph
Dry bulk ships usually take one to two years to construct. As a result, the indicator is usually more relevant for long-term investment horizons.
September orderbook
In September, the dry bulk orderbook inched up to 149.2 million deadweight tonnage (or DWT)—from 148.2 million DWT in August 2014. In terms of number, the orderbook narrowed down to 1,722 from 1,726. Growth was only recorded by Capesize vessels. The rest of the vessels—Post Panamax, Panamax or Kamsarmax, and Handymax or Supramax—recorded a decrease.
A decrease in the orderbook indicates that investors and managers are skeptical about the industry growth rate. As a result, they’ve adopted a cautious approach when ordering new vessels. They’re watching for the deliveries.
Dry bulk companies
The dry bulk orderbook is indicating marginal signs of increase. As a result, dry bulk shipping companies—like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Knightsbridge Tankers Ltd. (VLCCF), Safe Bulkers Inc. (SB), and Navios Maritime Partners LP (or NMM)—may trade sideways or inch marginally higher because investors want to play it safe. The Guggenheim Shipping ETF (SEA) would also follow similar suit.
Click here to learn more about dry bulk orderbooks.
DRYS $1.76 $0.17 10.69%
DSX $8.46 $0.21 2.61%
SB $5.44 $0.18 3.42%
SEA $18.72 $0.48 2.63%
VLCCF $7.25 $0.87 13.64%
PART 9
Must-know: An overview of dry bulk shipping indicators (Part 9 of 13)
Must-know: September’s newbuild dry bulk prices
By Katie Dale • Oct 15, 2014 12:05 pm EDT
Ship prices
Ship prices are an indicator. The prices suggest that investors gauge the fundamental prospect of the bulk vessels. Broadly speaking, ship prices can be broken into newbuilds and second-hand vessels. Newbuilds reflect an expectation of future rates. It can take up to three to four years to construct a new dry bulk vessel. Second-hand vessels show near-term fundamentals.
Enlarge Graph
Newbuild prices areconsistent
For new bulk carriers, the prices for Capesize, Kamsarmax, and Ultramax vessels in September 2014 have been consistent. Its previous month levels were $53 or $54, $29 or $30, and $27 or $28 million, respectively.
The total dry bulk fleet grew 5% to 742.8 million deadweight tonnage (or DWT). Capsize vessels recorded 4.6% growth. Panamax or Kamsarmax vessels recorded 7.1% growth. Post Panamax vessels recorded 7.4% growth. In 2014, the year-to-date (or YTD) deliveries were 37.2 million DWT.
September is slow
The building market in September has been slow. Many of the ongoing discussions in the industry are delayed. Despite few inquiries or projects, the yards’ quoted prices that remained unchanged in most segments. This increased the bid or offer spread.
The most noticeable contracts are COSCO’s order for Newcastlemaxes and Kamsarmaxes in China.
Impact on dry bulk
Consistent vessel prices may support to the Guggenheim Shipping ETF (SEA). They could also help dry bulk shipping companies’ performance—like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Navios Maritime Partners LP (or NMM), Navios Maritime Holdings Inc. (NM), and Safe Bulkers Inc. (SB).
Click here to learn why newbuild prices help investors.
DRYS $1.76 $0.17 10.69%
DSX $8.46 $0.21 2.61%
NM $5.00 $0.14 2.77%
SB $5.44 $0.18 3.42%
SEA $18.72 $0.48 2.63%
PART 10
Must-know: An overview of dry bulk shipping indicators (Part 10 of 13)
Must-know: September’s 5-year and 10-year ship prices
By Katie Dale • Oct 15, 2014 12:05 pm EDT
Second-hand vessel values
Vessel values for five-year and ten-year old Capesize vessels decreased marginally to $47 million and $34 million, respectively, from $48 and $35.5 million in August 2014.
The Panamax vessel value for five-year and ten-year old vessels declined to $23 million and $17.5 million, respectively, from $23.5 million and $18 million in the previous month.
The Handymax vessel value for five-year and ten-year old vessels decreased to $22 million and $16 million, respectively, from $24 million and $18.5 million in August 2014.
Enlarge Graph
Newbuilds versus second-hand vessel values
Second-hand vessel values were led by quicker deliveries. As a result, price movements in second-hand vessels tend to reflect industry participants’ expectations for medium-term fundamentals. For newbuilds, buyers and sellers have to wait about two years for delivery. Second-hand vessel prices are usually more responsive to changes in current rates.
Buyers and sellers are more medium-term thinkers. They’re more responsive to industry turnarounds—compared to newbuilds. Although this only takes about one or two months, share prices can move fast within a small period.
Enlarge Graph
Vessel price appreciation
September passed by without any signs of an expected re-bounce in the freight market. This indicates that an increasing number of owners are becoming less optimistic about the near-term market development. Overall, there has been a reduction in sales activity. Also, there has been downward pressure on prices.
Mid-size segments experienced the largest value reductions with five-year and ten-year old Panamaxes and Handy or Supramaxes. They recorded a drop of 25% from the peak levels in March. However, a similar age Capesize fared better. It experienced a dip of 10%–15%.
With the movement of these vessel prices, dry bulk shipping stocks—like Diana Shipping Inc. (DSX), Knightsbridge Tankers Ltd. (VLCCF), Safe Bulkers Inc. (SB), and Navios Maritime Holdings Inc. (NM)—would also be affected. If vessel values continue to drop at this rate, these stocks and the Guggenheim Shipping ETF (SEA) could be negatively affected.
Click here to read an overview of dry bulk shipping from mid-2014.
DSX $8.46 $0.21 2.61%
NM $5.00 $0.14 2.77%
SB $5.44 $0.18 3.42%
SEA $18.72 $0.48 2.63%
VLCCF $7.25 $0.87 13.64%
There are no shortcuts to investing.
But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.
I Agree
PART 11
Must-know: An overview of dry bulk shipping indicators (Part 11 of 13)
Why the Baltic Dry Index is strong in the fourth quarter
By Katie Dale • Oct 15, 2014 12:05 pm EDT
Baltic Dry Index
The Baltic Dry Index measures the health of the dry bulk industry. The Index increased 8.6% through October 3—compared to last year. However, it’s down 55.6% from its recent peak in December. The Index stumbled since September 10. However, seasonal demand for North America grain and Brazil iron ore exports may boost rates in the fourth quarter.
The Index tracks the costs of moving dry bulk freight through 23 seaborne shipping routes.
Enlarge Graph
Industry analysts commented that the Baltic Dry Index will likely increase in the fourth quarter. It will increase because of seasonal commodity demand. This could support the performance of dry bulk companies like Diana Shipping Inc. (DSX), Knightsbridge Tankers Ltd. (VLCCF), Safe Bulkers Inc. (SB), Navios Maritime Holdings Inc. (NM), and the Guggenheim Shipping ETF (SEA).
Dry bulker rates strong
Since December 2013, Panamax rates have fallen by 58%. Supramax are down by 34%. Handysize are 35% lower. For the third quarter, dry bulk rates showed a sign of life. They increased by an average of 45% for all the vessels. Capesize rates are more volatile. They recorded a dip of 27% since August 29.
Looking ahead, rates may carry momentum into the fourth quarter. This would be a result of seasonally higher global commodity demand and slower fleet growth.
2014 outlook
According to analysts surveyed by Bloomberg, dry bulk time charter rates will likely increase an average of 20% for 2014. Capesizes are expected to increase the most in 2014 at 36%. They’re followed by Supramaxes at 18%. In 2015,the overall growth may accelerate to 46% on Panamax strength. This is 72% higher. They will decline in 2016. They will be 4% lower.
With excess capacity plaguing the industry, disciplined fleet growth is essential to push rates higher.
Click here to learn more about the Baltic Dry Index and how it impacts stocks.
DSX $8.46 $0.21 2.61%
NM $5.00 $0.14 2.77%
SB $5.44 $0.18 3.42%
SEA $18.72 $0.48 2.63%
VLCCF $7.25 $0.87 13.64%
PART 12
Must-know: An overview of dry bulk shipping indicators (Part 12 of 13)
Must-know: Analysts’ opinions on the dry bulk industry
By Katie Dale • Oct 15, 2014 12:06 pm EDT
Dry bulk industry
RS Platou had a bleak outlook for the dry bulk shipping industry. It cut its rating from positive to neutral. This indicates that the second quarter had seen supply growth exceed demand improvements for the first time in over a year.
Enlarge Graph
Supply or demand
An RS Platou report noted a fall in nickel ore and bauxite shipments from Indonesia. This was the result of a ban. It contributed to the considerably weaker market in recent months. In the second quarter, dry cargo demand increased by 5% year-over-year (or YoY). The report said that supply grew by 5.4%. Since 1Q13, this is the first time that supply growth trumped demand.
Chinese coal
In 2014, Chinese coal imports will likely drop ~25 million tons—compared to an estimated increase of 15 million tons in its previous report. According to Plato Markets, this is mainly due to weaker industrial activity and lower coal use in energy generation—relative to other energy sources.
RS Plato expects a small rebound in Chinese coal imports in 2015 and 2016. However, if China reduces coal consumption growth more, there will be downside risks.
RS Platou commented that it lowered its previous rate guidance significantly. There was lower demand growth because of less Chinese coal shipments. It foresees capesize rates of $20,000–$22,000 daily in 2015 and 2016. This is down from previous number of $29,000 daily.
With a cautious outlook on the coal commodity market, dry bulk companies like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Safe Bulkers Inc. (SB), Knightsbridge Shipping Ltd (VLCCF), and the Guggenheim Shipping ETF (SEA) may also be affected and trade sideways.
Click here to learn more about the dry bulk industry.
DRYS $1.76 $0.17 10.69%
DSX $8.46 $0.21 2.61%
SB $5.44 $0.18 3.42%
SEA $18.72 $0.48 2.63%
VLCCF $7.25 $0.87 13.64%
PART 13
Must-know: An overview of dry bulk shipping indicators (Part 13 of 13)
Why analysts comment on the dry bulk industry
By Katie Dale • Oct 15, 2014 12:07 pm EDT
Analyst comments
BIMCO’s chief shipping analyst, Peter Sand said that the updated World Economic Outlook from the IMF suggests that the shipping industry could be in for even more doom and gloom in the coming months.
Shipping is impacted by global economic growth. It will see lower demand in the coming years than what was previously expected. For container shipping, it’s positive that the U.S. is set to grow stronger.
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Company downgrades
Some of the largest names in the sector—including Capesize giant Knightsbridge Shipping Ltd (VLCCF) and Danish owner Norden—have also been downgraded in RS Platou’s recent quarterly report.
Knightsbridge is the largest Capsize owner listed in the U.S. It has been cut to sell from buy. Norden was downgraded to neutral.
Meanwhile, in the weaker dry cargo market, Platou also downgraded Diana Shipping (DSX) and Golden Ocean. It downgraded them from buy to neutral.
Platou analysts, Frode Morkedal and Herman Hildan, said that Knightsbridge is an attractive long-term investment vehicle. In the near term, weaker rates will bring a lower dividend.
Norden was downgraded to neutral. This was a result of the expected marginal rate improvement. It will pull its operating numbers back to black in 2015. However, the numbers won’t be at a level that justifies a higher stock price.
This could impact other companies in the industry like DryShips Inc. (DRYS), Safe Bulkers Inc. (SB), and the Guggenheim Shipping ETF (SEA).