Iron-ore restocking at Chinese ports to assist Capesize rates
The BDI was flat in May with the performance across all vessel categories showing a divergent trend. While the BCI staged solid recovery and rose 43% m/m, the BPI dropped ~20% m/m in May and registered the largest monthly decline. The BSI and BHSI moved 4% and -3% respectively over the last month.
Capesize earnings were up ~21% m/m to USD 5,517pd. The mid-month increase in Chinese iron ore imports led by declining inventory at ports and dearth of tonnage in Atlantic fuelled a rally in Capesize rates. Higher daily earnings in the Pacific sustained throughout the month backed by ample cargo availability and were up ~13% in May. Meanwhile in the Atlantic, daily earnings dropped towards the end of May because of reduced seaborne iron ore movement and sufficient prompt tonnage.
• Panamax earnings slumped ~19% m/m to USD 4,191pd. The Pacific market was active with increased seaborne coal movements from Australia and Indonesia to India, but the volume was not large enough to have positive effect on freight rates due to a large number of open vessels. China’s coal imports declined ~41% y/y to 14.3m tonnes, and this decline was the main reason behind the drastic fall in freight rates.
• For Supramax vessels, grain volumes from ECSA to the Far East and the Continent helped activity in the Atlantic region. Increased Chinese nickel ore imports and coal exports from Indonesia to India aided freight rates in the Pacific region.
• Activity in the Handysize vessel segment remained dull as charterers preferred to use larger vessels in the Transatlantic trade. However, freight rates in the Far East improved because of a better supply-demand balance.
No reprieve for dry bulk investors; NORDEN benefits from tanker exposurePrice Performance
• The BDI remained flat in May and seems to have bottomed-out after hitting a record low in February. The Capesize segment benefited from increased iron ore movements from Australia to China as a result of decreasing stockpiles at Chinese ports, while the Panamax segment continued to suffer from declining Chinese coal imports and supply glut. We do not expect any significant improvement in the dry bulk market in FY15, but foresee the possibility of a mild recovery in late-FY16 because of restrained ordering and increased demolitions.
Cumulative new orders until May 2015 were down 79% y/y to 5.1m dwt, while vessel demolitions rose 163% y/y to 17m dwt during the first five months.
• NORDEN’s share price was 14% higher in May helped by better-than-expected 1Q15 show. The company’s quarterly earnings were aided by a high charter coverage for dry cargo and a firm tanker market. NORDEN maintained its EBIT guidance of negative USD 40m to USD 40m as management is cautious on the dry bulk market. We hold Neutral view with a fair value of DKK 160 per share as Dry Cargo’s 1Q15 performance might not continue considering the potential expiry of charter contracts formalised in 2H14.
• Scorpio Bulkers’ 1Q15 results were dull as expected amid the turmoil in the dry bulk market. SALT caught investors by surprise when it announced equity issuance to raise USD 200m at discounted share price of USD 1.5 per share, which led to knee jerk reaction, with stock plunging ~30% in two back to back sessions. However, we believe that this drastic step coupled with the recent asset sales will inject the required liquidity to sustain the prolonged downturn.
• Diana Shipping reported a 4% decline in the TCE revenue to USD 37.1m, while EBITDA fell ~15% y/y to USD 10.1m in 1Q15; both lagged our estimates. The company refinanced borrowings of ~USD 85m in 1Q15 that will provide cushion to undertake vessel acquisitions. In the absence of near-term catalysts, we maintain Neutral view with a fair value of USD 6.5 per share.
• Navios Holdings posted net loss of USD 26.4m in 1Q15 compared with our estimate of net loss of USD 16.7m because of lower-than-expected revenue. Taking the weak earnings into account, we pruned our fair value to USD 5 per share. Nevertheless, the valuation appears compelling as the stock is trading at a price, which is less than the quoted market value of its stakes in subsidiaries Navios Maritime Partners and Navios Maritime Acquisition Corp.
Source: Drewry Maritime Equity Research
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