I remember analyzing the Baltic Dry Index in 2005 when it took a hit and EXC (Excel Maritime) was around $11/share in the beginning of 2006. In 2005 there was a tightening bias¹, hurricanes, a steel price correction that slowed down the movement of iron ore and coking coal, China was in an inventory correction and vessel rates declined. But the global growth story for China and India was still in tact. Plus there was congestion at Chinese and Australian seaports at the end of '05 when China was loading up on iron ore (olympics). The positive fundamentals allowed the Baltic Dry Index and EXM to increase 8 fold within a year.
Now the fundamentals have clearly changed. Lower rates are squeezing cash flows and vessel values have fallen so dramatically that they could breach NAV ratios on credit lines secured by vessels. Hopefully tonnage capacity, commodity demand and vessel values bounce back sooner or later. A story below did say many vessels get scrapped during a recession creating "vessel supply destruction". There's even some chatter that some public shippers might go private. But some analysts think there is more pain ahead for the industry. Plus if one of the Big 3 went under it would put more strain on the global economy. It's interesting that a bunch of DRYS out of the money calls traded today on a 13% up day when the market was down 2-3%. I'm not making any recommendations but if I went long for a trade here I'd buy some puts for protection. Very risky!
I provided the charts of the Baltic Dry Index, EXM, DRYS and the Commodity Index/Australian Dollar which have both taken a hit (Australia is a big commodity exporter so importers need the AUD). Also I found a few research reports posted on Scribd.com about the Baltic Dry Index.
Excel Maritime (EXM)
DryShips (DRYS)
Commodity Index/Australian Dollar (Source: futuresource.com)
Recent News:Dry bulk rates to rise as China starts restocking of iron ore 12/5/08 (Steel Guru)
"It is reported that Dry bulk rates are likely to recover when China replenishes its dwindling iron ore inventory and demand for thermal coal starts to pick up."
'We're postponing investment' 12/5/08 (Business Standard)
"The fall in freight rates to 20-year lows, the global financial turmoil and rupee depreciation have hit shipping companies hard. Globally, many of them are not even able to recover running costs. Shipping Corporation of India (SCI) — the country's largest shipping company with a fleet of 81 ships — has not yet ‘laid up’ any ship, though it has postponed asset purchases since prices are coming down. In a wide-ranging interview with Abhineet Kumar, SCI Chairman and Managing Director S Hajara discusses the problems facing the shipping industry".... Q&A
Dry bulk shipping plunges to all time lows 12/5/08 (SteelGuru)
"It is reported that just when things could not go worse, ship owners in the dry bulk market witnessed more bad news, with the Baltic Capsize Index and the Baltic Panamax Index plunging to their all time lows, since they were first introduced in 1998 and 1999 respectively...."
Plunging ocean freight rates have carriers in survival mode 12/3/08 (Purchasing.com)
"With rates declining from all-time highs to record lows in the past six months and demand for their services continuing to drop, dry bulk ocean freight carriers are in the perfect storm and some of them may not make it out...."
Elliott Wave On The Baltic Dry Index 12/3/08 (istockanalyst.com)
"A reader requested an Elliott Wave count on the Baltic Dry Index to compare that count to the $CRB or Commodity Index to note any differences. Let’s compare the two indexes and price structures...."
Commodities Collapse: Fast, Big and Still Going 12/3/08 (WSJ)
"The analyst who projected $200 oil should have lopped off a zero. The crash in oil, copper, grain and other commodity stocks in 2008 has outpaced the crash of technology stocks at the turn of this century -- with many taking only six months for the 80% wipeouts that took the tech sector two years...."
Dry Bulk Shippers May Tack Away From Market 12/2/08 (Forbes.com)
"Dry bulk shippers have been hit by a perfect storm of plunging asset values, tumbling freight rates and sliding stock prices. What's a ship owner to do? Some publicly traded dry bulk companies are mulling taking themselves private, and word on the Street is that DryShips and Genco Trading & Shipping are sailing in that direction...."
Collapse in dry bulk shipping rates unprecedented in its severity 12/1/08 (gulftimes)
"The recent months' collapse in dry bulk shipping rates has been unprecedented in its severity, the head of the body that organises the key shipping market said yesterday, as a key market index hit its lowest level since January 1987."
Renewed credit will be 'catalyst' in dry bulk recovery, says Nyborg (Pacific Basin Shipping) 11/26/08 (Lloyds List)
"Pacific Basin Shipping deputy chief executive Klaus Nyborg said a large question mark hung over the industry, regarding prospects for 2009. A Renewed willingness by banks to issue letters of credit will “be the first catalyst” in the recovery of dry bulk rates...."
Global meltdown is boom time for ship breaking industry 11/26/2008 (Indiatimes.com)
"Global financial meltdown, which has affected most of the industries, may prove to be a boom time for ship breaking industry in Alang, people associated with the industry said. According to them, recession in the economy will enhance the availability of ships to be scrapped as shipping industry has also been affected by the recession...."
Commodity Shippers Set to Breach Loans, Nordea Says 11/26/2008 (Bloomberg.com)
"Half of commodity shipping lines are likely to breach loan terms in the months ahead as rental rates and vessel prices fall, according to Nordea Bank AB, the world’s largest arranger of loans to the industry."
Reports Found on Scribd.com
Merrill Lynch: Dry Bulk - Staying In The Slump (11/28/08)
JP Morgan: Asia Pacific Dry Bulk Shipping (11/5/2008)
JP Morgan: Reasons Behind The Collapse of BDI (10/23/2008)
