Dry Bulk 2016: Only Companies With Very Strong Balance Sheets Will Get Through This Storm

All eyes in the dry bulk sector are on China for clues as to what lies ahead in 2016.

With just a few days of 2015 left, participants in the dry bulk sector will no doubt be glad to see the end of what has been a historically dire year for the sector.

But as analysts and industry players alike look ahead to 2016, most observers are predicting an equally challenging year ahead for the beleaguered sector - or worse.

The troubles for dry bulk in 2015 were perhaps best illustrated by the fact that the sector's key barometer, the Baltic Dry Index, hit an all time low not once, but several times.

That most recent all-time low of 471 fell on December 16, and since then the index has continued to languish around that level, having only managed the tiniest of recoveries to 478 in time for Christmas.

It comes as no surprise then that dry bulk firms are entering 2016 on much weakened footing, with key stocks such as DryShips [DRYS] reported to be down 86 percent for the year as of late November.

JP Morgan were among those making early predictions that 2016 will be an even worse year than 2015, and others are warning that many players will now not survive to see 2017.

"Demand fundamentals are so weak. The Chinese economy, which is the main driver of dry bulk, is way below expectations," said Symeon Pariaros, chief administrative officer at Greece-based Euroseas.

"Only companies with very strong balance sheets will get through this storm."

Problems for All

The bankruptcy danger was shared by Tony Foster, chief executive at Marine Capital, who said: "There are clearly big problems for almost all dry bulk owners, certainly those who cannot subsidise dry bulk through ownership in tankers. Debt can only be serviced through reserves of capital and not from cash-flow." 

"Public companies will issue discounted shares. Small private companies without obvious external support will be at the most risk."

Meanwhile Basil Karatzas, head of New York-based Karatzas Marine Advisors & Co., noted that at the start of 2016 the sector will also have to deal with an influx of new tonnage.

"Too many factors are against ship owners at present, and January sees a disproportionate delivery of vessels from the shipyards," he said.

Panos Makrinos, SnP Broker at Intermodal, argues that a decrease in demolition age to just 15 years could help mitigate oversupply, while a recovery in the steel sector, along with a rise in coal consumption would also improve fortunes.

Unfortunately most do not see any of those things happening in 2016, he noted.

Nevertheless, an optimistic Makrinos did say that the coming year will have some positives for owners, including low bunker prices, and a decreasing orderbook.

"You have bad times, followed by less bad times, followed by good times, followed by great times," he said.

Earlier this month, Robert Bugbee, President, Scoprio Bulkers likened the dire market to a "50 to 200 car pile-up."