Newlead Holdings Ltd. (fka NEWLF)

[GaryJPalys]

Not that $NEWL needs any help with a falling share price, but let's add this to the equation!

http://www.ft.com/intl/cms/s/0/973bdf56-a8a4-11e4-ad01-00144feab7de.html#axzz3QLmfM9Vg

Bulk commodity shipping rates fall sharply

The Baltic Dry index has slumped to its lowest level in almost three decades, hit hard by falling commodity prices and glut of ships.

The index, which tracks rates for ships carrying bulk commodities such as iron ore and thermal coal, fell 24 points, or 3.8 per cent, to 608 points on Friday.

It has dropped 95 per cent from its 2008 peak of 11,793, and is currently trading at a level not seen since the devastating shipping crisis of the 1980s.

The dry-bulk market has been sunk by a perfect storm as an armada of new ships, ordered after the financial crisis, have hit the seas just as Chinese economic growth has slowed and commodity prices have taken another lurch lower.

“There’s a certain amount of lethargy from charterers to do anything because next week prices are likely to be cheaper,” said one broker.

The slump comes despite traded volumes of many commodities reaching record levels, underlining the extent of the overcapacity facing the industry.

“The reason dry bulk has been soft for the last few years has not been lack of demand, it’s been excess supply,” said Eirik Haavaldsen, analyst at Pareto investment bank.

When shipping rates hit record lows in 2012 and 2013, private equity money flooded into the sector. The resulting ship glut flooded the market and drove rates down even further- contributing to the three decade lows seen this week.

Earnings for a capesize vessel, the 150,000 tonne ships typically used to transport coal and iron ore, have fallen to $6,707 a day today, down about 50 per cent year on year, and hardly enough to cover operating expenses of roughly $6,000 – $10,000 a day.

“Some of the share prices are starting to reflect almost a state of bankruptcy,” said Mr Haavaldsen.

Shares in US-listed Scorpio Bulkers have fallen 85 per cent in the last 12 months to $1.50, while Star Bulk Carriers, also listed in New York, has dropped 67 per cent in the same period.

“If rates stay where they are now for another year most of these names will have issues,” he added.

The industry has been further weakened by structural changes in commodity trade routes.

Anglo-Australian mining groups Rio Tinto and BHP Billiton are both shipping record volumes of iron ore from their mimes in Western Australia in an attempt to win market share and drive higher cost producers out of the market.

Their ore is increasingly being shipped to China at the expense of miners in other parts of the world such as Canada, Scandinavia and west Africa. Government figures released this month showed Australia accounted for 58.5 per cent of China’s iron ore imports last year, up from 50.9 per cent in 2013.

As the Australia-China route is much shorter it is much less lucrative for ship owners.

“A lot of the Atlantic suppliers, which are further away from China and have higher operating costs and debts, are struggling to make ends meet,” explained one analyst. “They are either mothballing mines, closing them down or not expanding. The next effect is to expand the market share from Australia.”

In contrast to the dry bulk market, rates for crude tankers have rocketed to six year highs last month, fuelled by the oil glut and contango market — jargon for when future prices are higher than spot rates, making it profitable for oil to be stored offshore.

Some companies with dry bulk vessels on order at ship yards, such as Scorpio and Cargill, are seeking to convert their orders to crude tankers to profit from the high rates and avoid acquiring more potentially loss-making dry bulk ships.