Must-know: Dry bulk industry and its supply demand scenario

Market Realist

Must-know: An overview of Diana Shipping’s earnings (Part 6 of 9)

(Continued from Part 5)

Dry bulk industry

The dry bulk industry performance and its supply-demand scenario also have a significant impact on Diana Shipping earnings and revenue as well as its peers like DryShips (DRYS), Navios Maritime Holdings (NM), Safe Bulkers (SB), and Diana Containerships Inc. (DCIX). The Guggenheim Shipping ETF (SEA) tracks shipping companies.

With lower spot rates, the company’s revenue would be negatively impacted. In contrast, with higher spot rates it would be supported. Also, the prices would be impacted with an efficient balance between industry vessel’s supply and demand. This would affect the performance of the companies in the industry.

Analysts have commented that the shipping industry behaved how they thought it would. Major shipping indices like Baltic Grains, Baltic Cape Index, and Baltic Panamax Index across the platform have recorded large declines compared to the levels at the beginning of the year. There are many factors that have contributed to the weakening industry. Lower imports of coal to China, particularly coking coal, is one of the factors. Lower congestion is also likely to lead to reduced growth in seaborne trade.

According to RS Platou data, average capesize daily spot rates during 2013 stood at $7,700 per day. Until recently in 2014, rates recorded at $15,800 per day. For Panamax, the 2013 rates stood at $7,400 per day. Currently in 2014 the rates stand at $8,500 per day, respectively.

Supply-demand

According to Stanley research, the Panamax supply is expected to grow by 8.7% in 2014 and an additional 7.1% in 2015. For capesize, growth rate is estimated at 2.2% this year and 3.9% in 2015. Clarksons expects the overall bulk carrier fleet capacity and supply and dry-bulk trade demand to grow at the similar rate in 2014 at 4.9% and 4.5%, respectively.

Meanwhile, annualized demolition for 2014 is forecasted at almost 16.8 million deadweight tons (or dwt)—25% lower than 2013 levels. Net annual fleet growth on these assumptions is foreseen at 5.8%, while slippage is likely to bring this level down to 5%.

According to Banchero Costa, demolition volumes in 2013 declined by 35% year-over-year (or YoY) in dwt. They’re down even further this year. In the first five months of 2014 demolition sales totaled 6.8 million dwt. They were down 37% over the same period last year.

Next, we’ll discuss the performance of the commodity and its impact on the shipping industry.

Continue to Part 7

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