Baltic Index Zooms Past 900! Is the Worst Over?

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Light at the end of the long tunnel for Dry bulk – Baltic Dry Index sets a new record, reaches a peak within a year

Introduction:

Bulk

Dry bulk shipping company DryShips has found itself knee deep in financial turmoil after it defaulted covenants on three of its bank facilities after suspended principal and interest repayments.  The business has almost reached its end after it started selling its vessels when its liquidity position became so weak that is was impossible to meet debt obligations. The company has already incurred huge impairment charges with its cash position of $6 million against liabilities worth $237 million.

As China’s iron ore and coal demand is starting to decline and the DryShip Company has to take immense effort to make a comeback.  This week the company has made a comeback on the market, with its share rising to more than 10%.  This rise in share has been attributed to the fact after Hanjin filed for bankruptcy when its cargo worth $14 billion was stranded at sea.

It has been reported that shipping freight carriers have announced a 50% rise in shipping rates by next month.  It is considered to be a relief for DryShip but only for a short while since its business decimated severely over the past month and a half.

The company had recorded a meagre $13 million in revenue last quarter which a steady decline of 83% from previous year.  The massive decline in revenue has been narrowed down to two factors:

  • Firstly, a steep drop in the time charter equivalent rate of around 70% attributed to weakness in the drybulk shipping market which had taken a hit due to oversupply.
  • Secondly, 50% decline in total voyage days of the taskforce.

Baltic Dry Index sets a new record, reaches a peak within a year:

Baltic Dry Index has finally smashed the 900 point mark on Wednesday; it gained 38 points to reach 903 points since the end of October 2015.  The average TC rates were on the rise in all major segments on Wednesday with a swelling in the capesize rates of $14,366 per day (+$1213) with the earnings of Panamax and Supramax reaching $5,397 per day (+$133), and $6,918 per day (+$14) respectively.

It was predicted by the analysts that the index would reach 900 in May following a 131 per cent jump to 671 in April from a record low index of 290 in February.

In an almost non-existent ordering activity by dry bulk, it has been reported that Scrapping has fallen from a stated 12.9 million DWT in first quarter of 2016 to 10.5 million DWT in the second quarter.

Silver lining for Dry bulk – How does it benefit the Shipping industry?

There seems to be a glimmer of hope for Dry bulk in lieu of the first time since its financial constraints.  The panellists at the Marine Money’s event has expressed that the rates have increased due to considerable improvement at the demand side by China.

Pankaj Khanna, CEO of Singapore handy specialist Pioneer Marine has expressed that due to realignment in the capsize rates a balance has been noted in the supply and the demand. Khanna stressed “To survive it’s important that loan to valuation levels remain strong” and further expressed that plenty of money is available to purchase ships and every ship on the market get sold and the current market condition is a sellers’ market.

Cautionary concerns:

But Christoph Toepfer, Managing director of Borealis Maritime has warned that more stressed sales are foreseeable, the current glimmer of hope in the market is only sustainable for a short time and this market condition has to be sustained in the long run for it to become profitable.

Drewry’s Arjun Batra, has stated, “Any upside will be limited and who was adamant that the bottom of the market had now been past”.  Michael Nagler, Head of chartering at Noble Group expressed that increase in cap market is ‘artificial’ owing to rise in commodity prices and demand.  Nagler warned that ordering capes now would spell a disaster for the dry bulk market.

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Reference: Splash, Ship & Bunker

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