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Dry bulk beginning to climb out of its abyss… slower is better…

Dry bulk beginning to climb out of its abyss… slower is better…
“The shipping Gods have been buying dry bulk vessels,” was the most quotable quote from the dry bulk session at Capital Link’s 10th Annual International Shipping forum, held in New York.

Referring to family companies, Scorpio Bulk’s (SALT) Robert Bugbee said that these enterprises, amply capitalized with little or no leverage, have time on their side, in contrast with a group of listed dry bulk companies which have featured in recent news.

Responding to moderator Omar Nokta’s opening question about offensive and defensive postures, panelist Hamish Norton, from Star Bulk, offered: “Companies that are playing offense have little or no debt, and a lot of cash.” Bugbee added: “Those playing a powerful offensive game have really started to do it.”

This view was confirmed by DVB’s Martin van Tuijl, on the Banking panel (which followed dry bulk on the schedule), who said: “The people buying bulkers now are cash-rich; they may lever up later.” In his closing remarks, Bugbee emphasized: “The right money is buying.”  He went on to compare the present dry bulk situation with that of tankers four years ago, a time of pervasive pessimism (and a famous Morgan Stanley report which described a ‘Tanker Abyss’).

In the eyes of SALT’s Bugbee, “the biggest danger is a very quick recovery,” which he felt would hurt the lender discipline that is now been infused into the business. Bugbee, who stressed the importance of liquidity and available cash (following last week’s share raise by SALT) said he hopes that banks continue to hold investors’ feet to the fire – alluding to the notion of bank’s taking over vessels.

Banker Michael Parker, who heads up Citibank’s transport activities, on the subsequent panel, noted that “even though Robert (Bugbee) wants it, there’s no attraction for banks to take over fleets.” He added that “a banker threatening to seize his security is like pointing a gun at yourself.”

On the dry bulk panel, Norton said: “There’s no real benefit in a public company in having debt, if you can avoid it,” and that cash allows savvy buyers to best play the shipping cycles.  Safebulkers panelist Polys Hajioannou, was emphatic that the market has seen a bottom, and noted an uptick in inspections of vessels for sale.

The dry bulk panel saw more upside than downside; IHS analyst Dalibor Gogic to 2017 representing a transition year for the dry side, when net fleet growth would be 1.3% and demand would be growing at a rate of 2.4%. Shipowners on the panel and bankers speaking later were looking out a bit farther, to 2018-2019. Paradoxically, panel members were hoping for the slope of the eventual recovery in hires (now at levels rivalling the 1980s) to be moderate.

In a discussion of the recent Chinese valemax order, which Clarksons Platou’s Nokta called the ‘elephant in the room’, Star Bulk’s Norton said that, hopefully, other owners would be frightened from placing orders. Stamatis Tsantanis, ceo of Seanergy Maritime, noted that the large order still represented a small percentage increase in the overall fleet, with Tasos Aslides, from Euroseas, contrasting dry bulk versus liners, where a large order might trigger a similar fusillade from a competitor.

SALT’s Bugbee sought to diminish the outsized attention devoted to iron ore movements, which may or may not fuel the capesize market. He suggested that this time around, the eventual recovery might well be led by smaller vessels which can take a much wider range of cargoes.

He did stress, though, that a confirmation of a recovery will be needed, evidenced by… drum roll here… public companies selling equity.