ramisle

Two Telling Charts - TRANQ and BDI

I'd like to add to Alan Young's comment.
The BDI has had some greatly exaggerated movements this year, sometimes caused by port congestion. When ships are waiting for weeks at certain busy ports it decreases the availability of ships for hire, and affects the supply and demand, and therefore the rates. Sometimes the port delays are caused by weather, washed out rail lines, interruptions of port operations, but not always an indication of increased shipments. The ports, especially the coal port of Newcastle, Australia, and Qingdao in China for unloading Iron Ore, and their limitations have long been a major factor in fluctuations in the spot rate. Another factor is the stockpiling of ore preceding the annual iron ore price negotiations. In may, 2008 there was a tremendous spike in the BDI, greatly influenced by an effort by BHP to grab all available Capes to make the cost of VALE's ore from Brazil prohibitive. That was followed by the huge crash.
Really, the use of the BDI as an economic indicator is a false indicator if the many variables are not taken into consideration.

Testing the Performance of Price-to-Book Value

Every one of the shipping companies you listed have greatly overstated the real value of their ships. They are based on the purchase price of the ships. That may be acceptable to their accountants, but not their Banks. Which is why many of them are in breach of loan covenants, meaning that the ships do not provide enough collateral value against the loans taken on them.
Don't expect ship values to make a return any time soon. The growth of the word wide fleet will outpace even the most optimistic projections of world wide GDP growth. Shipping rates fall when the supply of ships outnumbers the cargoes needing to be shipped.
Many of the shippers have had to sell shares to raise money to pay down debt. They say they are raising money for accretive acquisitions, but much of the money is needed for operations, and debt. And shippers are considered cyclical, so their traditional PE range is 6-9.
Another problem with screeners. Those must be trailing PE ratios, and some must be ancient. TBSI has lost money for the last 3 quarters, and will continue to do so. And SBLK, and PRGN have set charters that will result in falling earnings for the next two earnings releases.
Also, some Dry Bulk companies have been counting "Amortization of above and below market charters" as revenue. That might be a generally accepted accounting practice, but it is not part of the analysts estimates and should not be included in a "clean number". Certainly not when computing PE ratios.

The Death of Shipping and BDI Is Premature

Sorry colonel, I never try to predict what the price will do.
I think the dry bulk stocks can be traded often, but if you are waiting for a double then it could be a long frustrating wait. They have become a darling of the traders, and you never know what will cause it to spike up.
The dry bulk fundamentals suck for a few years, there are just too many ships being built. But that doesn't seem to dampen the unbridled enthusiasm of people who think a stock that fell to $3 from $130, will somehow get back there.

The Death of Shipping and BDI Is Premature

Look at SEC form 424B filed 9-25-09, they will be selling 335 million more shares to YA Global. Add that to the 90 million they have now.
They lost money with rates in the $20,000 to $30,000 per day range and rates are not expected to get better soon. Tanker rates are expected to be worse.
They sold the Richmond and Juneau which earned a combined 77,000 per day and took a loss on the sale. They are being replaced by 3 Capes which will earn a combined 80,000 per day, and cost them a combined 180 million.

The Death of Shipping and BDI Is Premature

The growth of the fleet is expected to be much greater than even the highest expectations of the growth in demand for the next two years. China is importing Iron Ore and Coal at a pace that surpasses demand for Steel, and can't be expected to add more demand than it already does.
Arcelor Mittal, the biggest steel maker in the world, projected a tepid recovery for worldwide Steel demand, especially given the pricing pressure from China's massive production.
One thing that should not go unnoticed, Vale, the largest Iron Ore producer in the world has purchased 20 older Capes and VLOC's this year and has ordered 28 new VLOC's to be built. They have also signed several long term charters with the big Japanese and Korean shippers to secure a consistent freight rate. They will become nearly self sufficient in transporting their product.
I can't express enough, the effect this will have on the BDI, when Vale no longer needs to hire spot ships to deliver it's ore. Much of the recent rise in the BDI can be attributed to port congestion in the Coal ports of Australia, and the annual grain shipments. The FFA's are showing a precipitous fall in rates through 2010.
It's simply too early to jump into Dry Bulk. Make money elsewhere and return to this sector next year. And yes DSX, NMM and NM are in very good shape, most of the rest have serious consequences from breaches of loan covenants, high debt, dilution at poor prices, and commitments to purchase ships at inflated prices. PRGN, SBLK, and EGLE have reset charters at much lower rates, EXM, and DRYS have massive debt. TBSI has a fleet of small ships that are 80% over 20 years old, and 40% over 25. OCNF is a total disaster, soon to have 450 million shares outstanding.
Fearnleys is a great source, as well as:
drewreys.co.uk
weberseas.com
brs-paris.com
cotzias.gr
worldyards.com
lloydslist.com
nilimar.com
platou.com
steelguru.com
chinamining.org
tradewinds.no
drybulkindex.com

Four Shippers Emerging from the Mire

It didn't bother you that PRGN diluted shares from 27 million to 48 million?
And yes they did sign long term charters on 6 of their 12 ships that will cover 98% of 2009, but the changes to those charters will result in $110,000 less per day, over $8 million less revenue per quarter. The next two earnings reports will be a major disappointment.
EGLE will be selling shares, they have 22 new Supramax to pay for. And they reset some charters lower. They have filed a shelf offering.
TBSI has a fleet of very old, small Handymax and Tweendeckers. Their value has fallen so much as to put them in breach of loan covenants, they will have to pay down the debt to be in compliance when the waivers expire. They also have 6 new ships to pay for when they are losing money. They have filed a shelf offering.
Most of these companies are in breach of loan covenants because of low ship valuations, and most have to sell stock to reduce debt, they also had increases in interest and restricted cash as part of their waivers. Those waivers expire in one year at which point they must have a 125% collateral to debt maintenance ratio. Ship values are not rising.
DSX has little debt, and Cash to pick up distressed assets.
And NM has secured senior notes to cover new ships and consolidate debt. They have new ships arriving with financing in place.
OCNF is a disaster, massive dilution like DRYS. EXM is deep in debt. And phony earnings.
Read the SEC filings and by all means, read the Fleet Deployment Page to see when these companies will take an earnings hit.
It is a very transparent sector. The biggest problem is the growth of the fleet will far outpace the growth in demand for two years.
drewry.co.uk
weberseas.com
brs-paris.com
cotzias.gr
worldyards.com
lloydslist.com
fearnleys.com
nilimar.com
platou.com
steelguru.com
drybulkindex.com

BDI Signals Slack Demand for Raw Materials

parkwood, you just made the case where the BDI is not an ACCURATE gauge of economic activity.
"If China stopped purchasing, the BDI would crash, plain and simple".
Well, China didn't stop, they slowed slightly, and yet the BDI dropped by 50% from June highs.
What has changed? The imports of ore dropped only 10%. The imports of Coal increased in China and India. The production of steel products rose to a record in August. What has changed is the long lines of ships waiting to unload. There are fifty fewer Capes waiting to unload, increasing the supply of ships available.
After a flurry of activity that imported more ore than could be processed, the shipping normalized to an orderly schedule of delivery. Add to that the addition of more new ships and the BDI gives a false impression that things came to a screeching halt in China.
The fact that Vale has pretty much stopped leasing ships on spot, will have a huge impact on BDI. They signed long contracts with Japanese and Korean shippers, and most importantly, they bought 20 Capes and VLOC's, and have 12 VLOC's on order.

BDI Signals Slack Demand for Raw Materials

Good job, you can get a view of the future of the BDI, it's the FFA's, forward freight agreements. Futures traded by the industry, often used as a hedge by the ship owners. They are headed down for awhile.
platou.com
The BDI shouldn't be used as a gage of economic activity, it was completely driven by China, and yet China cannot sustain the world's fleet by itself. It was wildly altered by the Iron Ore price negotiations between the Miners and CISA. The Chinese Iron and Steel Association, was warning that 60% of the Ore purchases were made by speculators, not steel makers, that were betting that there would be a rise in the price of ore. This led to the long lines tying up ships, and the fact that much more ore was being stockpiled than could be processed each month. The real demand would have left charter rates much lower. Like now.
And even now, if the GDP of the industrialized nations were to grow by 8%, the BDI will stay stagnant , because the fleet is expected to grow by 25% over the next two years. For those that hear about scrapping and cancellations, There are better sources of shipping news.
drewrys.co.uk
weberseas.com
brs-paris.com
cotzias.com
worldyards.com
lloydslist.com
fearnleys.com
nilimar.com

Paragon Shipping Income Statement Analysis for June 2009 Quarter

I understand the desire to bottom feed. In the hopes that a company will return to past performance. But there are two roadblocks for PRGN. The massive amount of new ships will depress charter rates and the low values on ships will mean PRGN will remain in breach of loan covenants, unless it pays down debt. That will require more dilution. The same people that said the brief recovery in the BDI in May was unsustainable, (and they were right), are the people who say rates will be depressed for two years. The delivery of new ships will outweigh the growth in demand. More than the best estimates of world wide GDP growth.
Aside from the occasional run-up because of momentum traders this will be dead money. Look at the SEC filings, they have set charters that will result in $8 million less per quarter, how will that be received by the market. The future earnings power you seek, is further away than you anticipate. Timing stocks may be impossible, but there is money to be made elsewhere, and you will be able to buy this at the same price much later. I don't make price predictions, but the hit to earnings, is real, documented, and I can't imagine a scenario where it will be ignored. I know many people talk about the foresight of the market, but these days the market has the attention span of a gnat.

Paragon Shipping Income Statement Analysis for June 2009 Quarter

I have no idea why so many people think that the fact that they are 100% chartered for 2009, is any guarantee that their earnings won't change.
In June and July, the following changes were made to their future revenue expectations. By Jan, 2010 they will have "locked in" Charters which will bring in $8 million less per quarter.

Calm Seas from $37,000 per day, to $15,775 per day
Deep Seas from $34,250 per day, to $15,000 per day
Pearl Seas from $51,300 per day, to $37,300 per day
Coral Seas from $54,000 per day, to $15,775 per day
Sapphire Seas from $26,750 per day, to $22,750 per day

And to top it off, they will now have 47 million shares outstanding.
There's no need to assume anything, The SEC has everything.
and ship values at
cotzias.gr

Baltic Dry Index Retreats: What Are the Drivers?

I know Mark Anthony doesn't do research so here it is:
Compensated gross tons = cgt
cgt = A x gt*B

A = represents the influence of ship type
gt = gross tonnage of vessel
B = represents the diminishing influence of ship size on the work required to build a gross ton.
For example: A Crude oil tanker, having a DWT of 157,800, and a gross tonnage of 87,167, would have a cgt coefficient of 0.36 and a cgt of 31,423.
With a worldwide shipbuilding capacity of 50 million cgt, they could build 1600 tankers, each being 157,800M DWT.

Mark, thats 250 million deadweight tons.

But, most of the orderbook is Bulkers, so you work on that one, Bulkers use a cgt coefficient of 0.61, but I'm sure you knew that.

CGT formula courtesy of Dr. Martin Stopford, Maritime Economics.

Baltic Dry Index Retreats: What Are the Drivers?

Mark Anthony, thats pretty pathetic having you tell me to do some research.
First you need to look up compensated gross tons, so you won't confuse it with million deadweight tons.
There were 90M DWT delivered in 2008 and worldwide capacity is supposed to increase to 190M DWT. Much of that increase is thanks to China. You've been trumpeting the growth of China, are you going to turn around and say China can't do it?
"Let's say dry bulk accounts for 25% of global ship building"
No, let's not. Dry Bulk ships account for 64% of the orderbook.
In 2007 165 M DWT were ordered and 64 more in 2008.
You have been provided with quotes and links to confirm the growth of the fleet but you always dismiss them. Drewrys, Fearnleys, Worldyards, BRS, Weberseas, Platou, Compass Maritime. All Shipping Trade publications, whose job is to follow and report the shipping business. These aren't Blogs.
According to you they are all wrong, Liars, one giant conspiracy to hold down rates.

So, if China is drowning in dollars then how will they use it to stockpile ore and steel. Who has the dollars? It's not the steel makers. So are you saying that the Chinese government is buying up all the inventory of steel? If so, prove it. If not then how will a steel mill that lost money for 9 months be able to keep producing, and keep buying ore?

Paragon Shipping Financial Gauge Analysis for June 2009 Quarter

In June and July PRGN announce the renegotiations of charters on 5 of it's 12 ships. These changes will result in $100,000 less revenue per day, over $8 million per quarter.
And the SEC prospectus states that after the latest 10 million share offering, PRGN will have 47,179,115 shares outstanding.

Calm Seas from $37,000 per day to $15,775 per day
Deep Seas from $34,250 to $15,000
Pearl Seas $51,300 to $37,300
Coral Seas $54,000 to $15,775
Sapphire Seas $26,750 to $22,750

Baltic Dry Index Retreats: What Are the Drivers?

Dry Bulk has always been cyclical, for this reason dry bulk shippers have a traditional PE of 6-8. Like many other sectors they are doomed to repeat the boom and bust cycle of shortage of ships and glut of ships. Many people have insisted that the remedy is simple, cancel the Orderbook of ships to be built. It is far from simple. Deposits have been paid, and those have been followed by more money as the ship progresses from keel laying to finish. The easy ones were cancelled, the rest will be delivered, maybe not to the original owner, but to bargain hunters.
And then there are the miners and steel makers who are building a fleet, rather than pay more for shipping ore, then the ore was worth, like in May 2008. Vale and some Chinese companies have been buying up the older Capes, they are NOT being scrapped. And Vale and some of the huge steel makers like POSCO are ordering new VLOC's which hold the equivalent of 2.5 Capes. Soon, Vale will not be hiring independent shippers to haul their ore, they will have a fleet of 35 ships. There will be a glut of ships for years to come, if you think scrapping is the easy answer, then why hasn't EXM scrapped the Lady, a 24 yr. old Handy? Because it still makes more than the $ 3 million it is worth in scrap. And the Breakers make more money scrapping the single hull tankers. The Tankers, Containers and Bulkers all have excess capacity at the same time.
China is still importing record amounts of ore and coal, and producing record amounts of steel, and yet the BDI continues to fall. This is because of the growing fleet, the reduction in the line of ships wasted, by waiting to unload, and the fact that China cannot carry the Dry Bulk sector all by itself.

Eastern Winds Favor Diana Shipping

I fully believe the reason why DSX has not bought ships yet is because there is still more bad times ahead for the BDI, and the value of ships. Although Chinese buyers and Vale have been buying up older Capesize tonnage, the cost of newer ships could still fall. The record imports of Iron Ore to China over the first seven months of the year was unsustainable, and now they have three months stockpiled, huge inventories of steel and plummeting steel prices. The demand was not there. And Arcelor Mittal and the rest of the worlds steel mills are working at 50% production.
Far more ships are hitting the water than are being scrapped.
DSX is a great company that is in a good position to buy new ships cheap and charter them at decent rates.
DSX is a good pick, it just might be too early.

PRGN has only 12 ships and five of them will reset at charters that are at much lower rates this quarter and next. Their earnings are going to take quite a hit.
Calm Seas from $37,000 per day, to $15,775 per day.
Deep Seas $34,250 to $ 15,000
Pearl Seas $51,300 to $ 37,500
Coral Seas $54,000 to $15,775
Sapphire Seas $26,750 to $ 22,750