Baltic Trading Limited Management Discusses Q4 2013 Results - Earnings Call Transcript

Feb.27.14 | About: Baltic Trading (BALT)

Baltic Trading Limited (NYSE:BALT)

Q4 2013 Earnings Call

February 27, 2014 10:00 am ET

Executives

Apostolos Zafolias

John C. Wobensmith - Principal Executive Officer, President, Chief Financial Officer, Principal Accounting Officer, Secretary and Treasurer

Analysts

Douglas J. Mavrinac - Jefferies LLC, Research Division

Noah Parquette - Maxim Group LLC, Research Division

Operator

Good morning, ladies and gentlemen, and welcome to the Baltic Trading Limited Fourth Quarter 2013 Earnings Conference Call and Presentation. Before we begin, please note that there will be a slide presentation accompanying today’s conference call. That presentation can be obtained from Baltic Trading’s website at www.baltictrading.com.

To inform everyone, today’s conference is being recorded and is now being webcast at the company’s website, www.baltictrading.com. [Operator Instructions] A replay of the conference will be accessible any time during the next 2 weeks by dialing (888) 203-1112 or (719) 457-0820, and entering the passcode 9027298.

At this time, I will turn the conference over to the company. Please go ahead.

Apostolos Zafolias

Good morning. Before we begin our presentation, I note that in this conference call, we will be making certain forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe and other words and terms of similar meaning in connection with the discussion of potential future events, circumstances or future operating or financial performance.

These financial(sic)[forward] looking statements are based on management’s current expectations and observations. For a discussion of factors that could cause results to differ, please see the company’s press release that was issued yesterday, the materials relating to this call posted on the company’s website and the company’s filings with the Securities and Exchange Commission, including without limitation, the company’s Annual Report on Form 10-K for the year ended December 31, 2012, and the company’s subsequent reports filed with the SEC.

At this time, I would like to introduce John Wobensmith, the President and Chief Financial Officer of Baltic Trading Limited.

John C. Wobensmith

Good morning. Welcome to Baltic Trading’s Fourth Quarter 2013 Conference Call. With me today is our Chairman, Peter Georgiopoulos; and Apostolos Zafolias. I will begin today’s call by reviewing our fourth quarter highlights, as outlined on Slide 2 of the presentation, followed by a review of our financial results for the quarter. We will then discuss the industry’s current fundamentals and open up the call for questions.

Beginning on Slide 4. We're reviewing Baltic's Trading highlights for the fourth quarter. During the fourth quarter and full year 2013, Baltic Trading took advantage of attractive asset prices near historic lows, significantly expanding the company's modern, high-quality fleet and strengthening its position for future growth. We also took proactive measures to enhance the company's financial strength and flexibility, while continuing to implement our unique fleet deployment strategy, which has enabled Baltic Trading to capitalize on a rising freight rate environment.

For the fourth quarter, we declared a dividend of $0.03 per share, increasing the cumulative dividend declared by the company to $1.09 per share since going public in March of 2010. For the 3-month period ended December 31, 2013, Baltic Trading recorded net income of $600,000 or $0.01 basic, diluted and earnings -- basic and diluted earnings per share. I will discuss our financial performance in more detail later on the call. Baltic Trading's cash position at the end of the fourth quarter was $58.2 million. During the fourth quarter, we completed the acquisition of 2 Capesize vessels for an aggregate purchase price of approximately $103 million. This acquisition expands our strategic presence in the Capesize sector, considerably increasing our future earnings and dividend potential. Upon delivery, the 2012-built Baltic Lion and the 2011-built Baltic Tiger both entered into spot market-related time charters with multinational companies for 10.5 to 13.5 months per vessel. The rate for each spot market-related time charter is based on 102.75% of the Baltic Capesize Index as published by the Baltic Exchange.

During the fourth quarter, we also agreed to acquire 2 Ultramax newbuildings to be renamed the Baltic Hornet and the Baltic Wasp for an aggregate purchase price of $56 million with an option to acquire 2 additional vessels with the same specifications and purchase price. The company made the strategic decision to exercise this option to acquire the Baltic Scorpion and the Baltic Mantis at the beginning of 2014, further strengthening the company's long-term commercial prospect and enhancing our position in the global transportation of drybulk goods. With these 4 eco-designed vessels, combined with the recently completed acquisitions of the 2 Capesize vessels, as well as 2 Handysize vessels that were delivered in September of last year, Baltic Trading is poised to more than double the size of its modern fleet on a tonnage basis and moving the fleet to 17 vessels.

In support of the ongoing execution of Baltic Trading's growth strategy, we completed a $58.2 million share offering during the fourth quarter, the third successful share offering completed by the company in 2013. Notably, the underwriters' purchase option was exercised in full for each of the 3 offerings, demonstrating the strong confidence the capital markets have of Baltic Trading's future prospects.

Complementing our efforts to maintain a sound capital structure for the benefit of shareholders, we entered into a $44 million credit facility with a global lending institution in the fourth quarter, which I will discuss in more detail later on the call.

Turning to Slide 5. We provide an overview of our fleet. Upon the expected delivery of the 4 Ultramax vessels between the third quarter of 2014 and the third quarter of 2015, Baltic Trading will own a fleet of 17 drybulk vessels consisting of 4 Capesize, 4 Ultramax, 4 Supramax and 5 Handysize vessels with a total of carrying capacity of approximately 1.3 million deadweight tons. At that time, the average age of our fleet will be 4.2 years, far below the world average of approximately 9 years.

We are pleased to provide our leading customers with modern vessels that adhere to the highest industry standards. Importantly, all of our current vessels remain employed on spot market-related contracts with creditworthy counterparties, including Cargill International, positioning Baltic Trading to maximize utilization while earning rates closely linked to the various dry -- Baltic dry indices, as well as capitalize on the positive long-term demand for essential commodities in developing countries such as China and India.

Turning to Slide 6. We provide our 2014 drydocking schedule. Consistent with our focus on owning first-class vessels with built-in advantages in terms of reducing carbon emissions, management commenced an initiative to upgrade the fuel efficiency specifications for certain vessels in Baltic Trading's existing fleet. With this innovative program, we expect to significantly increase operational efficiencies, while further enhancing our ability to provide superior customer service. The cost of the upgrades, which will be performed at the same time as the planned vessel drydockings, is expected to be approximately $250,000 per vessel, and is included in our estimated drydocking cost as outlined on this slide. The upgrades have already been successfully installed on 2 of our vessels, the Baltic Cougar and the Baltic Panther, which completed their respective planned drydocking during the first quarter of 2014. We expect 4 additional vessels to be drydocked during the remainder of the year, 3 of which are to have installed these fuel efficiency upgrades.

Turning to Slide 8. We present our financial results. For the fourth quarter and year ended December 31, 2013, the company generated revenues of $14.5 million and $36 million, respectively. This compares with revenues for the fourth quarter and year ended December 31, 2012, of $7.1 million and $27.3 million, respectively. The increase in revenues for the fourth quarter of 2013 compared to the prior year period is due to higher spot market rates achieved by our vessels and the increase in the size of our fleet. The company recorded net income for the fourth quarter of 2013 of $600,000 or $0.01 basic and diluted earnings per share. For the year ended December 31, 2013, the company recorded a net loss of $11.4 million or $0.36 basic and diluted loss per share. This compares to a net loss of $4.3 million or $0.19 basic and diluted loss per share for the fourth quarter of 2012, and a net loss of $17.3 million or $0.78 basic and diluted loss per share for the year ended December 31, 2012.

Key balance sheet items, as presented on Slide 9, include the following: our cash position increased to $58.2 million as of December 31, 2013; our total assets as of December 31, 2013, were $557.4 million, which consisted primarily of cash and cash equivalents and our current 13-vessel fleet; our EBITDA for the 3 months ended December 31, 2013, was $6.3 million, representing an EBITDA margin of 43.2% of revenues.

As mentioned earlier, we entered into a $44 million term loan facility with DVB Bank during the fourth quarter. Under the terms of the 6-year facility, amounts borrowed bear interest at LIBOR plus a margin of 3.35%. The credit facility is to be repaid in 24 quarterly repayment installments of $687,500, the first of which is payable in March of 2014, and a balloon payment of approximately $27.5 million payable concurrently with the last repayment installment 6 years from now.

We appreciate the support we have received from our expanded lender group as we capitalize on favorable acquisition opportunities that we believe will create long-term value for our shareholders. In terms of our built-in fleet growth, we intend to use a combination of cash on hand, future cash flow from operations, as well as commercial bank debt to finance the acquisition of our 4 Ultramax newbuildings.

Moving to Slide 10. Our time charter equivalent rate for the fourth quarter of 2013 was $13,507. This compares to $7,953 recorded in the fourth quarter of 2012, and the increase in TCE rates resulted from higher spot rates achieved in the fourth quarter of 2013 versus the same period last year. For the fourth quarter of 2013, our daily vessel operating expenses decreased to $4,995 per day versus $5,141 per vessel per day for the fourth quarter of 2012, mainly due to lower insurance and maintenance-related expenses.

We believe daily vessel operating expenses are best measured for comparative purposes over a 12-month period in order to take into account all the expenses that each vessel will incur over a full year of operation. In maintaining our focus on preserving a lean cost structure, we are pleased that our daily vessel operating expenses were below our budget of $5,400 hours per vessel per day on a weighted basis for both the fourth quarter and the year ended December 31, 2013. Based on estimates provided by our technical managers and management's expectations, we expect daily vessel operating expenses for the full year of 2014 to be $5,400 per vessel per day on a weighted-average basis.

On Slide 11. We discuss our dividend for the fourth quarter. As I mentioned earlier, Baltic Trading declared a fourth quarter dividend of $0.03 per share, as we remain committed to distributing a substantial portion of our cash flow to shareholders. The dividend is payable on or about March 17, 2014, to all shareholders of record on March 10, 2014.

On Slide 12. We present our anticipated break-even levels. Our low break-even levels are testaments to Baltic Trading's cost-effective operating platform and serve as a core differentiator for our company. For the full year 2014, we estimate our daily vessel operating expenses to be $5,400 per vessel per day on a weighted basis of an average number of 13.42 vessels for the year. We expect our daily free cash flow breakeven to be $10,510 and our daily net income breakeven to be $13,738.

I will now turn the call over to Apostolos to discuss the industry fundamentals.

Apostolos Zafolias

Thanks, John. I will start with Slide 14, which depicts the drybulk indices. Represented on this slide is the overall Baltic Dry Index. As can be seen on the graph, the BDI rose significantly during the second half of 2013, albeit with periods of volatility. On the top rates, the BDI reached a high of 2,146 on the back of strong Chinese iron ore imports, as Brazilian cargoes recovered from earlier weather-related disruptions. Following a period of restocking, colder winter weather in China led to a relative slowdown of steel production. As a result, the BDI retreated to a short-term low of 1,483 on November 22, only to rebound above the 2,000 mark through the end of the year, due to the introduction of incremental ore capacity for miners Fortescue and Rio Tinto, which drove increased volume from Australia into China. Although rates have since declined due to a combination of weather-related disruptions in Brazil and Australia, as well as increased vessel deliveries for the first month of the year, the performance of the Baltic Dry Index illustrates that the declining pace of fleet growth has enabled freight rates to be more responsive to increases in cargo demand as market-wide fleet utilization improves.

On Slide 15. We present the monthly average of the Baltic Dry Index over the last 14 years, and highlight some of the historical trends contributing to fluctuations of the index. As can be seen on the graph, the first half of the year has historically been weaker due to the many -- to many of the factors I indicated as also affecting the beginning of this year. The second half of the year has historically rebounded, reaching a peak in the fourth quarter, primarily due to seasonal factors, including the ramp-up of the northern hemisphere rain season, increased coal demand for the winter months and peaking Brazilian iron ore exports.

In addition to poor weather and the front-loaded nature of the order book, 2 other factors that have specifically affected the market so far this year are the following: first, an export ban of unprocessed raw materials imposed in Indonesia has stalled nickel ore and bauxite exports; second, coal exports out of Drummond Colombian mines have been suspended as new rules relating to the loading and discharging of coal cargoes were imposed at the beginning of January. While we do not believe these trends will continue over the long term, it is hard to predict the timing and impact of a reversal. A number of influences that continue to impact the freight market as a whole are presented on Slide 16 and 17.

On the demand side, iron ore remains a focal point of drybulk trade, as China's imports of the commodity continue to grow at healthy levels. The country's iron ore imports increased 10% in 2013, propelled by a 7.5% increase in steel production. China's increased dependency on imported ore remains a positive catalyst for freight rates. Australia's exports increased by 18% in 2013, have expansion plans from BHP, Rio Tinto and Fortescue, resulting in record production figures for the miners. As weather-related disruptions for most Brazilian iron ore ports subsided and cargo availability increased, exports in the second half of the year rose 28% as compared to the first 6 months of 2013.

Turning to Slide 17. We know that China's ore stockpiles have increased to 99.8 million tons. We believe that increased inventories can be partially explained by a relative slowdown of steel production due to the New Year celebrations, as well as winter weather conditions. At the same time, record levels of the raw material have been imported with January's ore imports totaling over 86 million tons, marking a new all-time high. According to Commodore Research, the last time port inventories were this high for an extended amount of time, namely, July 2011 to October 2012, and ports were still able to increase during 15 of those 16 months on a year-over-year basis. We also know that while iron ore stocks at the ports have been on the rise, stockpiles at the steel mills have declined over the last month, as steel producers emerge from a seasonal output slowdown.

As portrayed on the graph at the bottom right, steel stockpile have also been increasing for the last 9 weeks as is typically the case during the first quarter, a trend we expect will reverse in the second quarter.

On the supply side, we have seen ongoing deceleration in newbuilding deliveries. 2013 deliveries were 37% lower than 2012, leading to an overall fleet growth level of 6%, which represents the slowest pace since 2003.

Lastly, we believe that as global growth prospects and sentiment in the rest of the world begin to improve, existing vessel availability could be absorbed by traditional raw material importers like Japan, Europe and South Korea. Eurozone GDP increased by 0.3% for the fourth quarter of 2013, marking its third consecutive quarterly increase, while Japan's industrial output increased 7.3% year-over-year for December.

Turning to Slide 18. We outline a number of short- and long-term catalysts that we believe will impact the drybulk market. Starting with factors that could affect the iron ore trade, we believe China's increased efforts to curb pollution by regulating high-emission industries like the steel production could benefit drybulk trade. The Chinese government has emphasized the use of higher-quality inputs in the steelmaking process. As China's ore is typically of low quality, this could translate to an increased reliance on imported ore in order to sustain firm industrial production. As older, less efficient mills become uncompetitive, we believe industry consolidation will increase utilization and margins at more established mills, which are typically located in coastal regions. Two additional catalysts we feel that have an impact on the market over the near term are the onset of the South American rain season in March, as well as the seasonal restocking of Indian coal prior to the monsoon season, which begins in May. Going forward, we continue to stress the importance of the Indian coal trade, as domestic production hasn’t been able to keep up with demand.

On Slide 19. We talk more about the demand side fundamentals. Global steel production grew by 3.5% in 2013, mainly driven by China. Moreover, beginning in September and carrying over into the fourth quarter, global steel production, excluding China, began to accelerate as well. Output from the EU and Japan increased by 7% and 9%, respectively in the fourth quarter. That strength has carried over so far in 2014, as production in those regions rose by 7% and 6% in January, respectively.

Moving on to Slide 20. On the left side of the page, we show the expansion plans of the 4 major iron ore producers, as recently revised by their respective companies. The combined expansion plans through 2018 aggregate to 296 million tons per annum or approximately 25% of 2013 seaborne ore trade. Most of the projected growth in export capacity for 2014 is expected to come from Australia, specifically miners Rio Tinto, Fortescue and BHP Billiton. As a result, Australia's Bureau of Resources and Energy Economics forecasts an increase in iron ore exports of 22% in 2014. As more ore comes into the market, and the price arbitrage potentially widens, we believe Chinese domestic producers are going to have a difficult time competing internationally, particularly due to the high production costs and low grade of domestic ore.

On Slide 21. We discuss the trends and supply side fundamentals. As seen on the bottom left of the page, the current order book less contracts prior to 2009 is 19% of the fleet. It is our opinion that newbuilding vessels contracted prior to 2009, which totaled 11.1 million deadweight ton or 7% of the total order book, have a low likelihood of delivering at this point, given the above [ph] market nature of these contracts. Lastly, we know that although augmented levels of vessels -- vessel ordering has taken place recently, it is our opinion that overall fleet growth will decelerate over the next 2 years from previous levels. We believe this could be an essential step towards the establishment of balance, supply and demand fundamentals within the drybulk industry.

This concludes our presentation, and we would now be happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll go first with Doug Mavrinac with Jefferies.

Douglas J. Mavrinac - Jefferies LLC, Research Division

I just have a handful questions for you. The first pertains to the market, I mean, you guys are clearly a spot player. And we've seen spot rates over the last week or so really start to catch fire. I mean, Capesize rates are already almost pushing $14,000 a day. So my first question is, what have you guys been seeing over the last several days that has enabled these rates to rally so hard even though we're not even out of February yet?

John C. Wobensmith

I mean, look, Doug, I'll tell you what I find more interesting than just the spot rates or even what the freight forward market is showing you is that 1-year time charter reach on capes are being done now 26, 26.5 per year. That to me is the most interesting thing because it's showing longer-term strength. And the guys that are doing that in the Capesize market, they're pretty sophisticated players. And so to me, that's the most interesting part, not just necessarily the spot rates. Eventually, the spot rates are obviously going to catch on.

Douglas J. Mavrinac - Jefferies LLC, Research Division

Right. So your impression, John, is that if guys are locking in at $26,000 a day for a year, they think it's a good idea, and obviously the inference is that rates are probably going to do something better than that, from their opinion?

John C. Wobensmith

Yes. Well, I mean basically, they've got a negative carry right on that time charter rate, at least right now. [indiscernible] a lot. But yes, clearly, people are looking forward and seeing better rates.

Douglas J. Mavrinac - Jefferies LLC, Research Division

Right. And just -- so following up on that thought, just in terms of the depth of the market, the liquidity of that market, I mean, I'm seeing that -- we've seen at least half as many contracts done of all of last year, even though we're not out of February, so there's a lot of depth to that market. Is that kind of the same stuff that you're seeing as well?

John C. Wobensmith

Yes. No, liquidity is high. I mean, we haven't seen really any 2- or 3-year deals done yet. I think that's more from the owner side, not willing to lock in that kind of duration at this point.

Douglas J. Mavrinac - Jefferies LLC, Research Division

Got you, got you. Very, very helpful. And then kind of segueing to kind of the market outlook and probably what's behind some of these people's decisions and whatnot. In your prepared comments, you were talking about the amount of iron ore mining capacity being brought online this year and how Australian exports are projected to increase over 20%, which is greater than last year's 18% number. My question is, do you have an inkling or an idea as far as how that's going to progress throughout the year? Because I know, last year, when we were talking around this time of the year, you guys were pegging the second half of the year as the time when things were going to ramping up. So do you have a similar crystal ball or similar idea as far as how ratably that's going to occur in 2014?

John C. Wobensmith

Well, look, we're already seeing the ramp-up, right? I mean, it's -- there was a big ramp-up towards the end of the last year, so that's starting to spill into this year. And what you're now seeing are iron ore prices that have dropped to somewhere around $117, $118 on an imported basis versus domestic ore that's above $140. So that arbitrage has now opened up again, which again, we find very interesting in terms of the substitution affect. I still think the second half of the year just from a seasonality standpoint will be stronger. Vale usually comes on stronger in the second half of the year. So I think, in general, you're going to continue to see increased volumes, really, from now through the end of the year.

Douglas J. Mavrinac - Jefferies LLC, Research Division

Got you, got you. Very helpful. And then on the supply side of the coin. Can you remind us how that generally trends throughout the year, whether the first half is heavier than the second? And how will that play into the equation?

John C. Wobensmith

Yes, look, it's the same thing for a little different reason. You usually see November, December deliveries that were scheduled get pushed into January to get a newer bill date. And so we did see a little bit of spike in January, but again, we expect to see that come down throughout the year. I mean, overall, I think most analysts are projecting sort of a 4%, max-5% growth in this year. Even on the scrapping side, which we expect to slow down, I think Clarksons is still projecting 19 million tons of scrapping this year. To put that in perspective, I think there was around 22 million last year, still reasonably healthy numbers. There are still older ships that need to go and are very expensive to operate. So you take that 4% to 5% and you project that against a demand growth of 5% to 6%, and first time in a long time, we've been talking about it for a while, where demand growth is exceeding what's coming on.

Douglas J. Mavrinac - Jefferies LLC, Research Division

Right, right. No, that's very true. And then just 2 final questions before I turn it back over. When we talk about the supply growth and kind of expectations for the next year or so, if you were to place an order today at a quality yard, when would be the soonest that you would expect to take delivery of that ship? I mean, is that supply -- so, said another way, is any new -- are any new deliveries going to affect supply growth expectations in 2014, 2015? I mean, when would the soonest that, that would affect things?

John C. Wobensmith

So, I mean, everything we've been seeing in the market is end of '16, even into early '17, if you want to go in Japan right now for drybulk ships. And I still think there are more orders that are going to come on the VLCC front, the product tanker front and the gas front, they're going to take up yard capacity even further.

Douglas J. Mavrinac - Jefferies LLC, Research Division

Right. So we have a high-scale visibility for the next 2 years, is what the fleet roughly is going to look like, basically.

John C. Wobensmith

Yes. No, that's exactly right.

Douglas J. Mavrinac - Jefferies LLC, Research Division

Got you, got you. And then just final question, to me, it was notable that in your fourth quarter earnings release, you bumped up the dividend. Can you remind us of your strategy as it pertains to whether your dividend is formulaic or kind of what your thoughts are about that dividend? Because the increase, I think, is notable, but particularly given kind of what could be in front of us over the next year or 2.

John C. Wobensmith

Yes, I mean, look, fourth quarter was a strong quarter, so we felt the need to bump it up $0.01 up to $0.03. I do expect from a seasonal standpoint first quarter to be a little softer. But what we don't want to do is have a dividend that goes way up and then way back down. So we're trying to establish a little more of a norm in terms of dividend. So that's why went to $0.03, and cash flow per share for the quarter was around $0.09. And obviously, our -- I think our net income formula would have been $0.02. So we went a little bit above formula, but the idea is to continue to increase that as the year goes on and freight rates move up.

Operator

And we'll go next to Noah Parquette with Maxim Group.

Noah Parquette - Maxim Group LLC, Research Division

I wanted to ask about the fuel efficiency improvements you're doing on your vessels now. Can you talk a little bit about how you expect those investments to pay off? And do you think you will be able to get premiums to the indices on your index-linked charters?

John C. Wobensmith

I think it remains to be seen exactly where they're going to come out from an index basis. We just -- the Cougar has only been out of the yard for a month. I will tell you we have results that are more positive than our expectations. But it's a -- I have to caution you, it's a very short period of time, which is why we're not throwing numbers around quite yet. We want to give it another couple of months. But the payback on what we're doing is less than a year. And as I said, so far, it looks pretty favorable. What we've done is we put a muse dock [ph] on the stern of the ship to make water flow more efficiently over the prop. We put a brand-new, high-quality paint system on the ships, and then we've also put trim software that allows us when we're in Dallas or not carrying cargo to make sure that the ship is going through the water in a more efficient manner. I would tell you by next quarter, we'll have much more definitive numbers because it'll be a longer period of time of actually testing. But so far, it's very encouraging.

Noah Parquette - Maxim Group LLC, Research Division

Okay. And then going back to the dividend, I mean, you talked about, obviously, it was $0.01 above what the formula was, and you mentioned you want to keep it a little bit more stable. Are you going to be moving away from that kind of formula and more towards a stable dividend? Can you just talk a little bit more about that?

John C. Wobensmith

Well, it's not that we're necessarily looking to put a fixed dividend in place, but we're trying to -- we want to take volatility out of it. So, as I said, we could've done as much as $0.09 from a cash flow standpoint. But we want to keep -- I would say it should be a slowly rising dividend as freight markets recover. But it'll be looked out on a quarterly basis by the board.

Noah Parquette - Maxim Group LLC, Research Division

Okay. And then on to the industry side of things, stockpiles of iron ore are high. There's some discussion about how some of those stockpiles are being used as collateral for loans. How do you see that playing out? Do you think there's a risk that potentially iron ore stockpiles don’t decline and we could see an earlier rebound?

John C. Wobensmith

Yes, I -- look, we've seen periods in the past where we've had high stockpiles, which -- what I -- what we like to do is look at it as far as days on hand. Because obviously, we've had a large increase in steel production as well last year. So if you look at it from a days-on-hand standpoint, they're actually not that high. They're sort of right down the middle of the fairway. We have certainly seen this climb before. I think if you go back to sort of mid- to late 2011 into mid-2012, we saw high stockpiles, but we still saw a lot of imported ore moving at the exact same time. So I think it's -- it's like anything else in shipping. You can't just pick one statistic to look at, you got to -- you really got to look at the whole picture. And again, like I said, with steel production up 8%, 9% last year, you would expect inventory numbers as a whole to be up. Steel production this year is probably going to be up at a slower growth rate, around 3%. But again, it's off a larger base, and so those inventories should be higher. And as Apostolos pointed out in his call, what's really interesting is the inventory numbers at the mills themselves are actually on the low side.

Noah Parquette - Maxim Group LLC, Research Division

Okay. And then I just had one final question. On your break-even levels, it looks like you're looking for about $750 per day in noncash stock compensation. Does that -- that equates to about $3.5 million for the year. Am I looking at that right? And if so, how is that expected to be amortized over the course of the year?

John C. Wobensmith

Well, I mean, look, it's in the breakeven. I think you're pretty close to the number. Those were based on grants that were done at the end of last year. And as you said, it's noncash.

Operator

[Operator Instructions] We will go next to [indiscernible] with Morgan Stanley.

Unknown Analyst

I just have a question about the newbuildings. So you ordered -- you ordered 4 newbuildings now. And I was wondering if you were looking at further fleet expansion or you're now looking to redistribute basically the cash. Or if you're just still looking for opportunities in the market, further opportunities.

John C. Wobensmith

So, look, I think it's both. We're still looking for opportunities in the market, but we obviously have a dividend in place to return some cash to shareholders. That's always been -- always been the story of Baltic. We still think valuations are compelling. But again, we did a lot last year, and values have probably moved up 10%, 15% from a lot of the deals that we've done. So that obviously makes us look a little harder at transactions. But the goal is to still continue to grow and that -- and pay the dividend. So it's a little bit of both.

Unknown Analyst

And so which sectors do you see the best opportunities there size-wise? And do you prefer newbuildings or the second-hands? Is there any preference you have in those? Or...

John C. Wobensmith

Yes, I mean, as a whole, we've always been very focused on getting ships on the water as quick as possible, so that you can start an earnings stream and start to pay down the capital cost of those ships. We -- the newbuilds in general that we did, the only reason why we did those is because we were able to get pretty early in 2014 build dates on those first 2 Ultramaxes. And then you look at the options. We declared those in January, and they were probably on a per-ship basis already $2 million to $3 million in the money. So it seemed like the right thing to do. And as I said before, we plan on using bank financing to put in place for those ships. We don’t feel the need to go back to the equity markets for those -- for that transaction, which I think is a very nice place to be right now. Just to answer your question, I mean, we still think Capesize vessels are compelling because of all the iron ore coming on, and we still like the Ultramax and Supramax sector.

Unknown Analyst

Okay, great. And just on that leverage, so what is your target leverage for the vessels you -- the 4 newbuilding orders? Do you have...

John C. Wobensmith

Yes, we do. The purchase price of those ships were $28 million apiece, and our intention is to put 50% leverage on.

Operator

At this time, there are no more questions. This concludes the Baltic Trading conference call. Thank you, and have a nice day.

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