I feel like a kid asking every week: Are we there yet, are we there yet, how about now? Another week down, one more week closer to hopefully to seasonal strength and the BDI has again gone nowhere while almost all drybulk stocks took it on the chin last week.
Except for Navios Maritime Holdings (NYSE:NM) rising a tiny bit, just about every other drybulk stock got smacked down such as DryShips (NASDAQ:DRYS), Diana Shipping (NYSE:DSX), Navios Maritime Partners (NYSE:NMM), Safe Bulkers (NYSE:SB), Star Bulk Carriers (NASDAQ:SBLK), Golden Ocean Group Limited (NASDAQ:GOGL), and Scorpio Bulkers (NYSE:SALT).
How much lower can they go and what was the bad news this time?
Last week there was nothing major on the macro scale other than the usual doom-and-gloom analytical articles such as this one pointing out that although India is accelerating its coal imports, China is decelerating its coal imports even faster. This is because China is actually trying to combat air pollution and is setting increasingly strict environment requirements which are making coal less desirable.
What really seemed to clobber the drybulk shipping stocks were comments from GOGL management on Thursday that came with earnings. Forget that net loss was of course widely expected and technically actually beat on an adjusted basis. What probably caused jitters was that GOGL management called this the worst drybulk shipping market since the 1980s and is expected to continue to be bad.
I believe management's words, as you can see in the chart above on Thursday, spooked more drybulk stocks in addition to its own stock. GOGL described the situation as simply going from "bad to worse" which implies a forward-looking opinion that things may get even worse from here.
To illustrate how desperate the oversupply situation is without the demand to match for the world fleet, some ship owners have joined forces and create "pools" almost like OPEC used to do successfully controlling the price of oil. I say "used to" because OPEC doesn't have that power anymore. When it comes to commodities, companies need to control a huge meaningful supply of the good or service in order to have any joint power.
These pools represent not even 10% of the fleet for drybulk shipping service. Maybe there are some overhead synergies and reduced commission expenses as together they realize some economies of scale kind of like a joint venture, but there is no way they will have any other meaningful effect on the rates of ships or the profits (or reduced losses) from same.
The most optimistic thing that came out with acknowledgement from GOGL is that the world fleet supply is see an acceleration in scrapping and a deceleration in new orders that will eventually balance out. As a dry ship investor on the sidelines, I'm watching carefully to try to pick a bottom.
Usually stocks that are crushed form a bottom before the actual fundamental turnaround actually happens and it does seem to be that things can't get much worse. I'm not in quite yet as these stocks look like falling knives, but I'm watching very carefully.
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