Baltic Dry Index Is Sinking Shipping Sector

Stay Out For Now

Dry shipping could be a buying opportunity on the other end of this slump, but it’s not for the buying right now. Other stocks effected by this sector-wide price slump include Safe Bulkers (SB), Star Bulk (SBLK) and Diana Shipping (DSX). I am going to be looking for a sustained rise in shipping rates and the termination of DryShips’ offering before considering going long.

Once the dilution is priced in and there’s some stability in the sector, I’d feel a lot more confident entering into a long position than I would now. DryShips, for now, isn’t realizing its own bad news yet – the stock is disconnected from the reality of the situation, making it an avoid or short-term short at these levels.

From the company website:

DryShips Inc. is an owner of drybulk carriers and tankers that operate worldwide.

Through its majority owned subsidiary, Ocean Rig UDW Inc., DryShips owns and operates 10 offshore ultra deepwater drilling units, comprising of 2 ultra deepwater semisubmersible drilling rigs and 8 ultra deepwater drillships, 3 of which remain to be delivered to Ocean Rig during 2013 and 1 during 2015.

DryShips owns a fleet of 42 drybulk carriers (including newbuildings), comprising 10 Capesize, 28 Panamax, 2 Supramax and 2 newbuilding Very Large Ore Carriers (VLOC) with a combined deadweight tonnage of approximately 4.4 million tons, and 10 tankers, comprising 4 Suezmax and 6 Aframax, with a combined deadweight tonnage of over 1.3 million tons

 

Readers will note that all managed accounts were out of DRYS and reduced SB

I’m still not touching DryShips – and one look at today’s shipping rates reaffirms my skittishness around the company and the bulk shipping sector as a whole.

 Shipping Rates Have Been Thrashed

Again, we’ve had another night where shipping rates have fallen dramatically. Seeking Alpha reported:

• Overnight, Capesize shipping rates declined 19.6% (or -$1,4620 to $11,128/day), Panamax rates slipped 4% (or -$219) to $11,710/day, while Supramax rates fell 1.8% (or -$94) to $11,721/day.
• YTD, Capesize rates -71.5%, Panamax rates -20%, Supramax rates -23%.

(source – DryShips)

That puts the Baltic Dry Index down over 40% since the beginning of the year. Yet, year-to-date, DryShips is down only 18%.