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Baltic Dry Index hits all-time low; can bulk shipping survive?

The Baltic Dry Index fell under 400 points for the first time on Wednesday, in what’s sure to be taken as a very gloomy sign indeed for global trade’s prospects. It slid eight points to end the session at 394 – an all-time low – marking seven successive days of losses.

The dry bulk sector’s key barometer, first published in 1985, the index is actually a barometer of shipping prices for a range of “dry bulk goods”, which include such essentials as cement, iron ore, coal, grain and fertiliser. It has been heading lower this year as worries about Chinese demand mount in the face of weaker data; worries that clearly weren’t ameliorated in the slightest by better than expected trade numbers on Wednesday.

Long watched by some economists as global trade’s bellwether, the index came to mainstream prominence in the wake of the global financial crisis. It fell off a cliff in 2008, sliding from an all-time high of 11,793 points in May to 663 by December. Its economic value has been debated a little since, as a glut of ships built for global boom adjusted to the more realistic economic conditions that have pertained since, but the facts are unarguable.

Even that post-crisis nadir would look pretty good now.

If there was any good news on Wednesday, it was that the decline was significantly less than the 13-22 point drops seen over the last four sessions.

The problem at current low freight rates will be whether shippers can even meet their operating costs, never mind service debt.

Analysts have downgraded several dry-bulk companies in recent days, leading some to see record falls in their share prices. Industry players say only the strongest firms will withstand the pressure, with casualties expected.

Jefferies Group and UBS reduced their respective target prices for Scorpio Bulkers, known as SALT, and recommended a Buy in October, JPMorgan Chase initiated on the company with a Hold rating. Morgan Stanley upgraded Navios Maritime Partners, or NMM, to “equal-weight” from “underweight.” It believes NMM’s current distributions can be sustained until at least the end of 2017. Deutsche Bank maintained its Buy rating but cut its target price from $8.50 to $6.

Stifel Nicolaus downgraded NMM from Buy to Hold in a note published in November.

Analysts at Morgan Stanley and UBS have cut their target prices for Diana Shipping, or DSX, from $6.50 to $3 and $4.50 to $3.25, respectively. Wells Fargo also cut the target price for DSX from $7.50 to $5.50 and downgraded the recommendation to Sell from Hold.

Morgan Stanley and Jefferies downgraded Safe Bulkers to Hold from Buy in December and October respectively.
Source: News Markets

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