Wednesday, October 29, 2008

Baltic Dry Index Closes At 982 And Britannia Holdings Faces Loans Defaults!!

This was very much expected given the dramatic plunge in the index in recent weeks.

Again note the warnings of the possibility of shipping companies failing and the problems with Britannia Bulk Holdings in the following news report on Bloomberg.

  • Baltic Dry Index Drops Below 1,000 for First Time in Six Years

    By Alistair Holloway

    Oct. 28 (Bloomberg) -- The Baltic Dry Index, the benchmark for commodity shipping costs, fell below 1,000 for the first time in six years as the lack of credit curbed global trade and shipowners threatened to shun orders.

    The index, watched by banks including UBS AG as an economic indicator, fell 66 points, or 6.3 percent, to 982 points, the lowest since Aug. 8, 2002. The gauge has dropped 89 percent this year, driving down the combined market capitalization of the 12- company Bloomberg Dry Ships Index, led by Athens-based Diana Shipping Inc., to $5.5 billion from $32 billion a year ago.

    ``You are getting very, very close to the cost of just crewing and running a ship,'' Richard Haines, a senior director at London-based shipbroker Simpson, Spence & Young Ltd., said in an interview today.
    ``It can't go much lower than this without owners deciding they don't want their ships employed.''

    The International Monetary Fund predicts the world's advanced economies will next year grow at the slowest pace since 1982.
    The Bank of England today estimated losses on asset-backed debt, corporate bonds and other securities in the U.K., U.S. and Europe had more than doubled since April to about $2.8 trillion.

    Zodiac Maritime Agencies Ltd., the shipping line managed by Israel's billionaire Ofer family, said this month it may idle 20 capesize ships, which typically haul coal and iron ore. That's about 5 percent of the fleet operating in the spot market.

    Shipowners are also slowing down vessels to cut fuel costs. The average capesize is sailing at 8.54 knots, down from 10.33 knots in July. Capesizes are attracting rates of $7,340 a day, close to daily operating expenses of about $6,000, according to Henrik With, a shipping analyst at DnB NOR Markets ASA in Oslo. Daily rates for smaller panamaxes fell 8.1 percent to $6,413.

    Failing Shippers

    Fearnley Fonds ASA, an investment bank specialized in shipping, energy and oil services, expects a ``significant'' number of commodity shippers to fail within two years.

    Britannia Bulk Holdings Inc. has ``severe'' financial difficulties and a ``very high risk'' of being in default on a $170 million loan, the London-based commodities shipping line said in a statement distributed by Market Wire today.

    Industrial Carriers Inc., a Ukrainian operator of about 55 vessels, filed for bankruptcy this month.

    The London interbank offered rate, or Libor, fell 4 basis points today to 3.47 percent for three-month loans, the British Bankers' Association said. It was the 12th straight drop.

    The three-month Libor for dollars remains 197 basis points above the Federal Reserve's target rate for overnight loans of 1.5 percent, up from 81 basis points about three months ago. At the start of the year, the spread was 43 basis points.

    Awaiting Recovery

    Credit markets began seizing up after BNP Paribas SA halted withdrawals on three funds in August 2007. They froze after Lehman Brothers Holdings Inc. collapsed on Sept. 15.

    Shipping lines also have to contend with slowing growth in demand for most commodities. The S&P GSCI index of 24 raw materials has dropped 31 percent this month, its worst performance since at least 1970. Any turnaround for shipping markets may not come this year, according to Stuart Rae, joint managing director at M2M Management Ltd. in London.

    ``Towards the early part of next year I think we will have more liquidity and cash in the market, and more trading being done and the market picking itself up from the floor,'' Rae said in an interview today.

    OAO Severstal, Russia's largest steelmaker, and other producers are cutting output, sapping demand for iron ore and coking coal. The two commodities will account for about a third of the 3.2 billion metric tons of dry bulk goods shipped this year, according to Drewry Shipping Consultants Ltd.

See also article on Forbes: The Waves Rule Britannia

  • A falling tide sinks all ships. With global economic growth slowing and international finance grinding to a halt, no industry has been harder hit than the dry-bulk shipping business. As business evaporates, shipping companies are anchoring their boats and hoping to ride out the financial storm.

    The question is, which ones will have strong enough balance sheets to do so.

    On Tuesday we learned that Britannia Bulk Holdings is not one of those tough-as-nails companies.
    The dry-bulk shipping outfit, which had its initial public offering in June at $15.00 per share, announced on Tuesday that it would post a whopping third-quarter loss and that it is considering alternatives including liquidation or bankruptcy protection. Investors weren’t understanding. Britannia’s shares plummeted 86.8%, or $1.65, to 25 cents.

    Britannia said that there was a “very high risk” of default for its loan facility with Lloyds TSB Bank and Nordea Bank Denmark. The company is in discussions with lenders but said there can “be no assurance that a resolution of the issues surrounding the facility will be reached.”

    “The company is considering its alternatives if it is unable to reach an accommodation with the lenders, including liquidation or protection under applicable bankruptcy or insolvency laws,” the company said.

    Britannia, which transports good in and out of the Baltic region and has 13 dry bulk vessels, blamed its third-quarter loss on the substantial drop in shipping demand and a related decline in chartering rates. Dry-bulk rates on Capesize vessels -- those ships so large that they can't fit in canals -- sank 8.7%, to $7,340 on Tuesday, down from $8,042 on Monday and from $179,887 in the prior year.

    When Britannia arrived on the market in June it looked as if shipping rates could go nowhere but up. Another blow to the company is that it paid more to retain shipping vessels than it received for chartering them to customers. Add to that a misplaced bet on oil prices: fearing they would rise, Britannia hedged at prices substantially above the current level, and now it doesn't need all that much fuel.

    That Britannia's future is dim seems a foregone conclusion. The big question is: who is next? (See “
    High and Dry In Dry Bulk.”).

    Investors seem to have lost faith in DryShips and Navios Maritime Holdings since those two stocks sank significantly in late trading on Tuesday, both falling around 7.0% despite a rally in the overall market.

    Yet if you have a strong stomach, a long-term view, and any reason to believe that the global economy will rebound, now’s the time to buy.

    Meanwhile, the Baltic Dry Index, which measures dry bulk shipping rates on 40 routes across the world, tumbled 6.3%, to 982 on Tuesday--its 17th straight daily decline, down from 1048 on Monday, according to (See “
    Shipping Stocks Sink.”) . This is the first time the index sank below 1,000 since August 2002.

Other recent postings made on the Baltic Dry Index:

1. Views On Current Weakness On Baltic Dry Index
The Collapse of the Baltic Dry Index
Goldman Downgrades Bulk Shippers!
Baltic Dry Index Keeps Falling!
Baltic Dry Index Stages Strong Rebound!
Baltic Dry Index Set For Strong Recovery???
Baltic Dry Index Plunges To Seven Month Lows!
The Baltic Dry Index Keeps On Plunging!
Baltic Dry Index Continues To Plunge
The Plunging Baltic Dry Index And The Dangers Of Using Forward PE!
Baltic Dry Plunges Below 2000!!!
Admist The Plunging Baltic Dry Index, Dr. Marc Faber Warns That Some Shipping Lines Could Go Bankrupt!
Comments Heard Admist The Plunging Baltic Dry Index ( recommended reading!)