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Star Bulk Carriers Corp. (SBLK)
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Iron ore and shipping costs...
Bulk shipping costs have constraints, e.g the cost and margins on the commodity being traded. If the
shipping cost removes the profit on the trade for the commodity end market, then the shipping cost must decline. of course the dynamic can be tricky depending on the demand for the product itself.
The point raised at BTIG today by Greg Lewis is the coupling of these, and that Cape rates (which mostly haul ore) may see an air pocket, barring increased ore demand that drives the commodity price higher (now 50% off its earlier 2021 prices...)
Summary from today, on Hellenic Shipping News...
Baltic index extends rally, hits 12-year high on gains across vessels
in Dry Bulk Market,International Shipping News 21/09/2021
The Baltic Exchange’s main dry bulk sea freight index rose to a 12-year high on Monday, as rates across vessel segments jumped on robust demand and global shipping constraints.
The overall index, which factors in rates for capesize, panamax, supramax and handysize vessels, rose 29 points at 4,304, its highest since Nov. 24, 2009.
Analysts have attributed the recent rally in the dry bulk market to global shipping constraints and an overall rebound in commodities demand.
“Dry bulk ships are spending a lot more time waiting outside of ports, both because there are so many ships and also due to the new (pandemic-led) quarantine measures around the world,” said Emily Stausboll, shipping analyst at BIMCO, that adding various economic stimulus measures are also helping dry bulk demand.
The factors that have been driving the market “won’t disappear overnight,” and (seasonally) dry bulk market tends to perform best at the end of the year” before easing off into the start of next year, Stausboll added.
The capesize index increased 67 points, or 1%, to 6,487, a peak since December 2009.
Average daily earnings for capesizes, which transport 150,000-tonne cargoes such as iron ore and coal, increased $555 to $53,795.
Among smaller vessels, the supramax index rose for a sixth straight session, adding 12 points to 3,319, highest in over two-weeks.
The panamax index rose for an eighth straight session, adding 12 points, or 0.3%, to 3,916, it highest in over two-months.
Average daily earnings for panamaxes, which ferry 60,000-70,000 tonne coal or grain cargoes, increased $102 to $35,240.
$75M in additional free cash flow is expected in Q3 for SBLK.
That is based on their statement of 2/3 charter rates secured by 6 Aug at above $28K/day. With stronger subsequent rates, it is likely that their Q3 rates will be close to $29K/day. That will be about $6500/day above Q2. By their own guidance on free cash flow sensitivity, a $6500/day increment implies an boast of $300M annualized FCF ($75M per quarter). That leaves 0.75/sh of additional distributable dividends in Q3.
The Q2 payout was 0.70/sh. This was after $25M of FCF in Q2 was used to build equity in their fleet. Guidance indicates that about $30M in equity build is planned for Q3. That would leave about 0.70/sh of the enhanced FCF in Q3 for dividends, about Q2 payout.
The net result is that Q3 dividend is likely to be about $1.40/sh (give or take 0.20/sh).
Q4 shipping contracts are already being secured, and if the current spot rates hold their current levels for the next 6-8 weeks (by which time their entire spot fleet will have received new fixtures), their fleet charter rates should average near $33K to $36K/day. An additional $5000/day above Q3 rates would generate about an extra $50M in FCF.
The market is such that SBLK is likely to flirt with a $2/sh dividend in Q4.
None of these rather remarkable numbers, by any historical standard, is making any outlandish assumptions on near-future rates.
Stifel Maritime Update (issue yesterday...)
This is a lengthy, but interesting read. In their view, SBLK valued at 6 x EV/EBITDA (a modest historical valuation), and assuming the current 1-Yr rates on dry bulk vessels, would price them at $49/sh. When they apply the 2007/2008 last peak rates (which they dont expect, but dont discount entirely on a short term basis), would price SBLK at $163/sh.
The Pieces Of The Dry Bulk Puzzle - What Is Real And What Is Myth
Dry bulk shipping rates (and equities) have been trending higher all year long on the back of good underlying demand for the transportation of commodities, but also exogenous factors like COVID-related inefficiencies of ports and ships and spillover demand from containerized freight into dry bulk demand. While data on both of these other dynamics is challenging to quantify, we have surveyed many of the leading public and private dry bulk shipping companies on the impact of these two variables on their businesses. While the impacts vary from company to company depending on ship type, both fleet inefficiencies and container spillover are having only a minor impact with respect to actually supply/demand balance. However, with an already tight market, the incremental impacts are exacerbating rate movements, and we expect going into the winter months, the impact and tightness are likely to accelerate.
• Demand for commodities is primarily driving market tightness. The price of almost all commodities transported by sea is elevated backed by strong demand for those commodities. As a result, the production of steel, coal, aluminum, cement, fertilizers, etc. continues
to rise driving the need for increased transportation. We estimate that total dry bulk volume growth should be about 3% higher than 2019 (pre-COVID) levels. There is further pressure on ton-miles (average distance traveled) thanks to continued recovery in Brazilian iron ore output, challenged Sino-Australian relations pushing more North American coal to Asia, and drought conditions in South America.
• Container capacity spillover. The cost of ship goods in containers is currently about 600% higher than normalized levels. Add to that challenges in accessing containers and massive supply chain delays, and excess cargo has spilled over into the dry bulk shipping segment.
While it appears unlikely many dry bulk ships will actually carry containers, the goods in those containers are being loaded directly into smaller dry bulk ships. We expect this is translating into an additional 2% demand growth.
•Port Congestion. There are likely few people in the world who have not heard words like "supply chain constraint", "port congestion", and "shipping delays" in recent months. While this is primarily impacting container shipping, issues with harbor pilots, stevedores, and crew
switching, have slowed the loading and discharge of goods. While other factors are also in play like the types of cargoes being transported, on average dry bulk ships in harbor or dry docking vs those in transit appear to be closer to 15% of the fleet versus a normal average of 10%. On a tonnage basis the impact is not as severe, but still effectively removes shipping capacity just as demand is surging.
•These issues are likely to be sticky. Container craziness should abate, although we expect not until some time later next year or perhaps even in 2023. Consequently, we expect the spillover of container volumes to persist, and the same is likely true to supply inefficiencies.
Eventually, those factors should ease, however, we expect organic dry bulk shipping demand to continue to rise, and thus that rise has not been met by a significant amount of new vessel ordering. While an eventual unwind of these tangential issues could eventually ease market tightness, we expect the new normal to be at a healthy rate and cash flow levels, and even that not until 2023.
•Parabolic rates. There is a magic place in dry bulk and all commodity ships at which demand rises, but supply is unable to adjust and the only response is upward pressure on rates. We are now at that moment and all the slack has been worked out of the system, idle
ships are fully deployed, ships are generally going close to full speed, and the cargo count continues to grow. Limited ordering means ship supply growth will be little more than a trickle for at least two years, and cargo counts are likely to outweigh ship supply for at least the next 18 months. Price is the only lever left to move, and we expect there could be spikes to the already tight rate environment which could potentially (and temporarily) cause a doubling or tripling from currently healthy levels and on balance translate into exceptionally strong returns and higher share prices.
Mgmt could fix all of 2022 right now if they wanted and post NI of 700,000,000 next year, but they obviously think they can do even better. I think Net income could be over 1 billion next year, I think we’re going to see capes fixing 45k for 1 year TC and Panas in low 30’s.
Can today's dip in market be seen as a quick sale for SBLK? bought on 20.8 fingers crossed
Baltic Dry Index +2.46% at 4,410
Capesize Index +4.60% to $56,269
Ship Owner Says Commodity Freight Rates Close to Going Parabolic
By Alex Longley
(Bloomberg) -- An owner of commodity hauling freighters said rates for the ships are close to the point of spiking sharply higher and mirroring an unprecedented surge in costs for transporting manufactured goods.
Spot rates for container ships to move manufactured products have surged for 20 straight weeks and now stand 731% above their seasonal average over the prior five years, according to Drewry Shipping. John Wobensmith, the president and chief executive officer of Genco Shipping & Trading Ltd., said that prices to move commodities -- which have already rallied sharply -- may follow.
“You do get to a point, and you’ve seen this in containers, where you hit a certain utilization rate and you start to go parabolic on rates,” he said in an interview. “I think we’re getting close to that period.”
Container rates have climbed because of snarled supply chains and extra trade that have strained the fleet’s capacity as economies emerge from the worst of Covid-19. The boom reached into every corner of the global economy because merchant fleet handles about 80% of the world’s traded goods.
With more than 5 billion tons of dry commodities moved each year in so-called bulkers -- things like iron ore, coal, grains, steel and lumber -- a surge in dry freight would affect industries that produce and process everything from raw materials and crops.
Rates for giant Capesize carriers had their biggest single-day surge since 2008 on Monday, reaching $52,908 a day. Wobensmith said demand is currently outpacing vessel supply, which will remain low for years with shipyard orders mostly led by container ships.
Earnings remain well below the 2008 peak -- in excess of $200,000 a day just before the global recession hit -- and Wobensmith doesn’t anticipate them to get that high this time around. He also expects the situation to calm down again early next year.
New SBLK corporate presentation yesterday might open some eyes.
Their analysis of free cash flow for various TCEs in particular.
For a annualized fleet avg TCE assumption of $26,000/day, they estimates $5.9/share free cash flow.
For a annualized fleet avg TCE assumption of $35,000/day, free cash flow exceeds $10/sh.
Given that current spot rates for the larger vessels is above $50K/day, and is above $30K for Panamax and Supra, these cash flow scenarios are anything but pie-in-the-sky : they might even prove conservative.
BDI up 0.5%, to 4304 today
So goes down to that 17-18 to bounce back before q3 release. Its sure like spring after winter.
a little color from Magnus Fyhr concerning his new $35 target on SBLK shares...
""With most of the fleet operating in the spot market, we believe SBLK is well positioned to capture current strength in the spot market. With an average fleet cash break-even level of $9,800/day, including debt amortization, we believe SBLK is poised to generate significant cash flows in 2021 and 2022. While spot rates are at a ten-year high, we still believe that we are in the early stages of a multi-year cycle as steady demand growth coupled with lower fleet growth should result in improved utilization and firmer charter rates over the next few years," Fyhr opined.
The analyst summed up, "We believe SBLK shares are attractively valued trading at 4.5x our 2021E EV/EBITDA and a 9% premium to our current NAV estimate of $21.63/share compared to the drybulk yield peer group..."
Is this all about the China Evergrande news or is there more to it?
Baltic index extends rally, hits 12-year high on gains across vessels
in Dry Bulk Market, International Shipping News 09/21/2021
All shippers, especially dry bulkers, down today on Braemer comments about the weakening of China economy, as evidenced in steel production...
Wow this was not how I wanted to start the week
bdi keep going up. dry bulk demand up
New analyst coverage this morning:
$SB - Buy with $6.50 PT
$SBLK - Buy with $35.00 PT
$GNK - Buy with $30.00 PT
$EGLE - Buy with $80.00 PT
bodes well for the sector
Added at 20.40 nice dip.
DIVIDEND : was it paid yesterday ? My TD Webbroker account info said it would be paid today but I haven't received dividend after buying one day before last ex-dividend date published by TD.
Anyone have an answer ?
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