Short Course In/On Overproduction, 6

From the horses' mouths, The Wall Street Journal, January 21, 2016:

Dry-Bulk Shipping Firms Struggle to Ride Out Crisis

"Things have just stopped in China," said George Logothetis, chairman and chief executive of the Libra Group, an international shipping firm, speaking...at the World Economic Forum in Davos, Switzerland.  He described the situation as 'Armageddon level.'

The shipping industry's pain has been especially bad for dry-bulk shipping companies--whose vessels carry much of the raw materials of global trade...The Baltic Dry Bulk Index, sometimes viewed as a proxy for global trade, peaked out just before the 2008 financial crisis at 11000 points.  On Wednesday, it closed at 358.  The index has hit fresh record lows every day since the beginning of the year.

That is forcing some shipping companies to offload vessels at bargain basement prices.  Many of those same firms were expanding just a few years ago, confident the global economic crisis was behind them.

"We've never seen anything like this," said Emanuele Lauro, chief executive of New York-listed shipping major Scorpio Bulkers Inc.  "We never thought we would find ourselves in this situation when we were buying ships in 2013 and 2014 at historically low levels.  But in the past few months, the priority has been to create a liquidity runway [by selling ships] and keep zero value off the table."

Scorpio Bulkers...spent $1.5 billion for 28 "capesize" vessels, the biggest general cargo ships in the water, between November 2013 and March 2014.  As the prices of the commodities that Scorpio transports have tumbled, it has sold all the vessels at a loss of $400 million.

"It's a bloodbath, which calls into question the survival of many dry bulk shipping companies," said Basil Karatzas, a New York-based maritime adviser.  He said the number of capesize vessels in the water exceeds demand by more than 50%.

Daily general-cargo freight rates for newly built capes are around $3000.  Owners need rates of $6000, or as much as $12,000 for vessels with financing costs, just to break even.  For older vessels, the daily operating cost, including financing, can be up to $23,000.

Mr. Karatzas said big players such as Scorpio and fellow major Star Bulk Carriers Corp. can withstand the difficult conditions has long as they have access to capital markets.  Nasdaq-listed Star Bulk, which is majority-owned by US private investor Oaktree Capital Management LP, recently sold four capes still under construction raising $148 million.  Its shares closed at 40 cents Wednesday compared with a high above $228 in October 2007. 

Nasdaq notified Star Bulk this month that it has six months for its stock to reach a minimum bid of $1 for 30 consecutive trading session or it will face delisting. 

Star Bulk didn't reply to requests for comment.

Everything you need to know about the interpenetration of finance and industrial, or transport, capital.  Everything you need to know about asset backed securities-- all securities are asset-backed securities, and when the assets cannot transfer the capital accumulated in them to value expanding, expanding rapidly, expanding profitably, assets and securities are devalued.  "Fictitious capital" exists, but not in counter-position, in contradiction to "real" capital.  It exists as real capital's doppelganger, it's self-image.  It's the reflection that doesn't appear in the mirror as capital shaves its own throat.

So we have 28 capesize sold for $1.1 billion, or about $39 million each.  And we have 4 capes sold for $148 million or $37 million.  In 2007 capesize vessels cost $180 million each.

In 1992, they cost $40 million each.   

S.Artesian
January 24, 2016