Dry Bulk: Virtually Every Company in the Industry is Still at Risk, Says New Report

Despite the recent positive run for the Baltic Dry Index, virtually every company in the industry is still at risk, says AlixPartners.

Despite a recent positive run for the Baltic Dry Index (BDI), which as of Tuesday, has jumped more than 100 points in a little over two weeks to a near 2016 high of 692, virtually every company in the industry is still at risk, AlixPartners LLP (AlixPartners) warns.

According to its latest study, AlixPartners says that all of the 17 companies covered have been given a distressed Z-score, and shows that the majority of companies are at risk of succumbing to bankruptcy.

"Virtually every company in the industry is at risk because of uncertainties about overall global economic activity and trade, coupled with reduced demand for iron ore and coal from both China and India," stated the study, noting: "the outlook for the year remains extremely negative."

According the study, between 2014 and 2015, industry revenue declined by 18 percent, while earnings before interest, taxes, depreciation, and amortisation, dropped 168 percent to negative $115 million from plus $169 million in 2014.

Further, the report shows that companies lost a total of $2.8 billion in 2015, compared with losses of just $542 million in the stronger year of 2013.

Meanwhile, a survey by the Singapore Exchange (SGX) suggests market participants are becoming "moderately more cautious" in estimates of when a meaningful balance in the dry bulk shipping market will be realised.

Despite this, SGX did note that "in the coal market, domestic Chinese output restrictions and the resulting rise in unit costs have been spurring some optimism of stronger seaborne coal demand."

The exhange added: "our survey also indicated a consensus view of between 0-3 percent global net dry bulk fleet growth this year."

The AlixPartners survey shows that the effects of the latest factors influencing downturn have already started to be felt, with more negative effects still expected through the rest of 2016.

Further, it is noted that four dry bulk shippers filed for bankruptcy during 2015, while so far this year, Bulk Invest ASA has sought chapter 11 protection.

Last week, Ship & Bunker reported that, while world markets were reeling in the wake the the UK's decision to leave the EU, dry bulk markets seemed to buck the trend, making gains for the first time in 10 sessions, rising 5 points to 585.