Shipping Gets a Bearish Start to 2016
Multiple segments of the shipping industry reported bearish news Friday in what looks to have been a tough first week for 2016.
Following weakening indicators for China's industrial output and a series of sharp drops on the Chinese exchanges, the benchmark Baltic Dry Index fell to another historic low at 429 points on Friday, down from over 10,000 just five years ago.
The drop has affected multiple shipping firms with exposure to the bulker sector. Operator Scorpio Bulkers was downgraded by analysts Stifel on Thursday, just days after Scorpio's announcement of the sale of five Capesizes for $170 million. Stocks fell Friday for U.S.-listed Safe Bulkers (down 10 percent) and Navios Maritime (down 10 percent), and Oslo-listed Golden Ocean Group was watchlisted with a drop of 7 percent.
Shanghai International Shipping Institute has predicted a wave of bankruptcies for bulker operators in China; Deutsche Bank recently warned that the forced sale of ships could push bulker owners into bankruptcy as the firms approach the limits of their debt contract loan-to-value ratios.
A Deutsche Bank analyst recently told media that poor investor sentiment regarding bulker carriers has also negatively affected the share prices of tanker firms, which fell over 10 percent this week despite rising day rates and solid long-term chartering.
Container rates on key Asia-Northern Europe and Asia-U.S. routes continued recent volatility with a sharp 25 percent drop on the Shanghai Containerized Freight Index on Friday, reflecting continued overcapacity despite the record number of idled container ships. Rates for Asia-Europe and Asia-Mediterranean had doubled to values over $1200 per TEU on December 31, as multiple carriers implemented steep General Rate Increases ahead of the Chinese New Year and post-Christmas slow season. But trade analysts Drewry forecast Thursday that the end-of-year rate peaks were unlikely to hold and predicted a slow decline in revenue through 2016.
Oil prices have continued to plummet, down 10 percent in a week with Brent crude reaching a decadal low of $32 a barrel on Friday. But upstream producers show few signs of slowing the supply in response, Goldman Sachs says. And with Iran's oil exports expected to rise shortly with the lifting of sanctions, investors appear bearish on crude futures. Many traders are reportedly buying options for future sale values of as little as $25 per barrel, suggesting that they expect to profit from spot prices below even that level.
The oil price drop has put ever-increasing pressure on upstream firms, including offshore drilling contractors like Transocean and offshore supply firms like Singapore-based Ezra Holdings, which issued a loss warning Friday for the most recent quarter. So far, an estimated 250,000 jobs have been lost worldwide due to staff reductions in oil and gas production.
In shipbuilding, the top three Korean yards Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering reported combined annual losses of $6.66 billion on Wednesday, in what Korean news described as a new record. The amount is about four times their combined loss in 2014.
"It is the first time ever that the shipbuilding industry has chalked up such a dismal result," one industry insider told Yonhap news agency. "The situation in 2015 was worse than during the country's foreign exchange crisis in the late 1990s."