Dry Bulkers: Don't Expect A Recovery Anytime Soon

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Includes: BALT, DRYS, GOGL, NM, NMM, SALT, SB, SBLK
by: MTF Investing

Summary

The expected recovery in the Dry Bulk rates has yet to materialize.

Some in the industry are beginning to change strategies, sell off new builds, or considering parking ships.

Its too early to call a bottom, but investors should look for it soon.

The Dry Bulk Shipping sector has seen a slump this year with the majority of the companies making up the class down 40-80%. This in spite of the predicted recovery that was supposed to happen during the second half of 2014.

Scorpio Bunkers (NYSE:SB), Baltic Trading Limited (NYSE:BALT), DryShips, Inc. (NASDAQ:DRYS), Knightsbridge Tankers Limited (VLCCF), Navios Maritime Holdings Inc. (NYSE:NM), Navios Maritime Partners L.P. (NYSE:NMM), Safe Bulkers, Inc. , and Star Bulk Carriers Corp. (NASDAQ:SBLK) have all seen massive drops in price. Now with the year-end approaching, analysts are predicting the glut to continue into 2015.

"The outlook is for a bleak first quarter next year."

The Baltic Dry Index fell to 788 points on December 23rd, posting 20 straight days of losses, the longest losing streak since August 2012.

(Source: Dryships.com)

The low rates have shippers frustrated with the excess capacity in the fleet:

"There are too many ships. It's a charterer's market," said a Singapore-based Capesize broker on Thursday.

Scorpio Bulkers (NYSE:SALT) recently sold off one of their planned Capesize newbuildings:

A number of events pulled in the wrong direction resulting in a significant worsening of the market. The Indonesian export ban on a number of raw materials resulted in a large number of unemployed vessels entering a market which was already strained by too much capacity. At the same time, coal transports suffered under weather conditions decreasing the demand for coal and political actions limiting the import of coal into the very important Chinese market. In addition, financial instability in South America has also impacted the market and pushed rates downwards.

For ship owners, the current rates are driving some tough decisions to be made, and this may be near the bottom of the fall:

"We are at levels where the market cannot fall significantly further and we now see several owners not willing to trade," Norwegian shipbroker Fearnley said in a weekly note on Wednesday.

It's too early to tell if this will be a bottom, and an actual recovery may still be months to years away, but the low price of the companies poses an opportunity for investors and potential acquisitions.

The stock price has fallen to a level well below the value of the assets the companies own. There has already been talk of the potential acquisition of BALT by Genco. John Fredriksen recently completed the consolidation of VLCCF and Golden Ocean Group into one of the largest shipping companies. Moving into 2015 there may be additional rumors and targets.

Conclusion

The glut in the market has dragged shareholders down. The predicted recovery hasn't materialized yet, but it may be near the bottom. Investors with an eye toward 12-24 months may see excellent returns if there is a recovery in 2015, but expect those to come gradually.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.