Drewry: No Recovery in Sight for Dry Bulk Market

Share prices of dry bulk companies kept tumbling during 2015, and, according to Drewry Maritime Equity Research (DMER), the market is not expected to recover in 2016.

“We see no recovery in sight over the next 12-18 months because Chinese growth pangs will continue to haunt the dry bulk market and vessels will burn cash in 2016 as freight rates remain under pressure.

“Any improvement in vessel utilisation and earnings look set to remain elusive with little prospect of change in the foreseeable future,” Devanshu Saluja, Vivek Shah and Rahul Kapoor, analysts at DMER, said.

DMER has divided its dry bulk coverage universe into two buckets, one consisting of companies that are well positioned to weather the downturn, and the other including companies with higher embedded risk.

“The first cluster comprises D/S NORDEN, Pacific Basin, Diana Shipping and Navios Maritime Holding: all having positive operating cash flows and no financing concerns. On the other hand, Star Bulk Carriers, Scorpio Bulkers and Golden Ocean are exposed to high uncertainty and we advise investors to swap their holdings in these companies with better quality stocks,” DMER said.

DMER’s shipping index, which is based on the market cap of leading dry bulk companies, was down ~43% in 2015. Asset values failed to find a bottom with ship owners putting their vessels on the block in a bid to fix their balance sheets. Investors, enticed by cheap valuations, were caught on the wrong foot as stock prices breached critical support levels during the year.

“Dry bulk shipping will not be a preferred space and we advise contrarian investors to be selective while chasing the deep discounts presented by the ongoing sector weakness. Notwithstanding this, they should look to companies with diversified business structures over pure plays with large fleet sizes. Hence, we recommend D/S NORDEN and Navios Maritime Holdings from our dry bulk portfolio,” DMER added.

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