Pacific Basin Warns of More Financial Distress for Dry Bulk Players

Pacific Basin says it does not expect the dry bulk market to improve anytime within the medium term.

Pacific Basin Shipping Limited (Pacific Basin) says ongoing woes for dry bulk could mean more companies in the sector falling victim to financial distress following the recent collapse of Japanese dry bulk shipping firm Daiichi Chuo Kisen Kaisha (DCKK), which last week filed for bankruptcy protection with roughly ¥120 billion ($1 billion) in liabilities.

"The ship supply surplus built up in 2010-2012 and slowdown in Chinese raw materials imports - especially coal - continue to drive overall weakness, and we continue to manage the business for a weak market in the medium term," stated Pacific Basin.

"This weakness will continue to affect shipping businesses and could result in more companies experiencing financial distress along the lines of Daiichi Chuo Kisen Kaisha's recent filing for bankruptcy protection."

The company noted it had no exposure to DCKK.

The comments came as part of the company's third quarter 2015 trading update, and Pacific Basin says they are currently managing their business with a weak market outlook for the medium term.

"We are prioritising safety and staying power over additional long-term vessel commitments, although the market difficulties may present acquisition opportunities at depressed prices which we would carefully consider," the company explained.

"The increase in spot market rates in the third quarter helped spot earnings, but they have also affected the charter cost  of our index-linked inward chartered vessels which, after falling during the first half of the year, increased slightly during the third quarter."

Pacific Basin says that improvement in 2015's third quarter was encouraged by "healthier" Atlantic conditions as a result of strong exports from South America's agricultural sector, which have since dwindled.

Meanwhile, the company observes that "the Pacific freight market has been relatively flat, demonstrating only a moderate improvement through July which has since been reversed," noting that the current weak regional demand can largely be attributed to a persistent slowdown in Chinese coal and iron ore imports.

In September, Drewry Shipping Consultants Ltd (Drewry) said the dry bulk market is a "casualty" of iron ore and coal prices, which are in a "virtual free fall" due to shrinking demand, and any relief for the sector is still a "long way off."