Lloyd’s List Companies: Premature to say dry bulk woes are over?
Is It too early to declare the dry bulk woes are formally over?
Shaking off the weakness at the beginning of this year, bulker earnings have been on a slow but firm upwards trend since the second quarter on surprisingly strong grain exports from the Americas and coal imports into China.
But oversupply continues to cap freight gains. The Baltic Dry Index climbed to 1,257 points on November 18, a two-year high then, only to fall back to close the year at 961.
The bulker firms monitored by Lloyd’s List Companies, our one-stop shop for news, analysis and data of major US-listed shipping firms, were still mired in the red on a net basis for the third quarter even as their operating results improved.
This quarter indeed looks better, with earnings of all sizes of bulkers increasing further. But it could be some time before any of the bulker firms can regain profitability.
Below are their recent performance updates, ordered by their earnings before interest, tax, depreciation and amortisation per ownership day:
1. Safe Bulkers (news, data)
Safe Bulkers slumped into another net loss in the third quarter, and the depth of the deficit was worse than the quarter-ago and year-ago levels. However, the results might be deceiving as they included $17.2m impairment losses on vessel sales.
The company was still the best in controlling costs among its peers. Its fleet recorded average daily operating expenses of $3,617 per day, even lower than the second-quarter level of $3,814. This was a major reason why its ebitda per ownership day continued to improve since the first-quarter trough.
And the good times may come soon as dry bulk shipping rates improve. Its fleet achieved average earnings of $7,658 per day, and the fourth quarter will likely be even better, based on recent spot market performances.
In the five months from end-October, eight panamax, five kamsarmax and 10 post-panamax vessels in Safe Bulkers’ fleet are seeing their charters expire. There will be good opportunities to fix them at higher rates.
As sentiment turns optimistic, the company is busy improving liquidity via debt restructuring and public offerings. With firming freight rates and low asset prices, Safe Bulkers might pick up some secondhand tonnage soon.
2. Star Bulk (news, data)
Star Bulk recorded another net loss in the third quarter. However, that bottom line included $20.2m in vessel impairments and losses on ship sales, and its operating performance was actually improving in line with spot market recovery.
With rising earnings and low operating costs per vessel, the company generated ebitda of $9.4m based on Lloyd’s List assessments, ending a streak of negative ebitda for the first two quarters of 2016.
More importantly, Star Bulk completed its debt restructuring by deferring a total of $224m in debt repayments until after June 30, 2018. The company also raised $51.5m during the third quarter with strong support from its strategic shareholders, who provided approximately 65% of total funds raised.
The debt repayment holiday will temporarily lower the cash breakeven rate on a free cash flow basis to approximately $8,000 per day, one of the lowest breakeven points in the industry. This means Star Bulk will have a better chance to make a profit soon.
3. Golden Ocean (news, data)
Golden Ocean posted its seventh straight quarterly loss during July-September. But there are signs that the company could be returning to profitability.
With a large exposure to improving spot markets, its fleet recorded average daily earnings of $7,946, outperforming its peers. Arctic Securities said Golden Ocean’s time charter revenues beat its estimate, while the fourth quarter is looking even better.
In terms of ebitda, the company’s loss has been narrowing since the beginning of 2016. Ebitda per ownership day was minus $57, the best quarterly performance since the fourth quarter of 2014.
Also, it has shored up its balance sheet in time for the market upturn. Without near-term debt repayments after recent financial restructuring, Golden Ocean is poised to have an easier time in 2017.
4. Diana Shipping (news, data)
In the third quarter, Diana Shipping tumbled into a deep net loss of $78.3m. While the bottom line was bloated by a $50m impairment on the company’s investment in Diana Containerships, which is mired in the box shipping downturn, Diana Shipping’s core business in dry bulk also seemed to underperform.
Its fleet’s daily earnings continued to fall despite a general market improvement. In fact, Diana Shipping was the worst performer in this aspect among its peers, likely because many of its vessels came off charters when the Baltic Dry Index was in the doldrums in early 2016.
The company has 20 vessels that could have expiring charters by year-end at the earliest, though their charterers will likely keep them longer amid firming rates lately. If some are returned, Diana Shipping will have some chances to inch out higher earnings for them.
The company will need to improve profitability soon. Diana Containers, of which it is largest equity investor and unsecured lender, will be a drag for some time. And Diana Shipping’s debt restructuring talks with lenders failed to bear fruitful results. Its liquidity situation will be carefully studied by equity investors next year.
5. Scorpio Bulkers (news, data)
Scorpio Bulkers’ bottom line continued to improve in the third quarter, as previously expected.
The company’s fleet recorded average earnings of $6,791 per day, nearly doubled from the first-quarter level of $3,404. As for the fourth quarter, its kamsarmaxes averaged $7,064 per day with 77% of the days fixed as of end-October while ultramaxes averaged $7,016 per day with 58% fixed.
As spot rates pick up in November-December, Scorpio’s vessel earnings will likely improve further. Whether they will exceed the cash breakeven level of $8,000 per day is another question, but sentiment is turning optimistic.
As for the balance sheet, Scorpio has continued to delay newbuilding deliveries into next year and to amend loan arrangements. The next point to watch for will be the first quarter, when a larger number of newbuildings and a seasonal demand downturn could create some business risks.
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Source: Lloyd’s List
