16-12-2021 Star Bulk says ‘upcycle’ to continue amid newbuilding pressure, By Gary Dixon, TradeWinds
Giant Greek shipowner Star Bulk Carriers is betting on a continued bulker “upcycle” due to the lack of newbuilding orders. US investment bank Jefferies said the New York-listed company’s executives revealed during client meetings that the current boom is different from the one 20 years go spurred by China joining the World Trade Organization and vessel undersupply. Star Bulk bosses said the next cycle should be driven by a lack of new vessel ordering due to regulatory uncertainty and rising newbuilding costs. Additionally, shipyard consolidation and closures over the past few years have resulted in less available shipbuilding capacity, much of which is booked up by container vessels, they said.
The bulker orderbook has remained at about 7% of the existing fleet during 2021, and has trended lower towards the end of the year. Management believes ordering will remain under pressure, as there is no clear market solution to achieve zero or ultra-low emissions, especially for the smaller assets. Finally, the implementation of efficiency regulations from 2023 should also result in less effective capacity as older, less efficient vessels are forced to slow-steam or exit the market via scrapping.
Star Bulk also told Jefferies that the owner’s commitment to dividends remains firm, and it will seek to minimize spending cash in order to maximize handouts to shareholders. The shipowner could also look to make additional share repurchases, but only if it sells a few older vessels. With shares trading at a steep 35% discount to net asset value, a higher dividend expected in the fourth quarter and attractive supply/demand fundamentals, Jefferies has a “buy” rating on the stock. Analysts led by Randy Giveans said: “We remain constructive on a rate recovery in the dry bulk shipping market in Q2 2022 and beyond due to firm GDP growth coupled with low fleet growth.” Jefferies argues that recent volatility in capesize rates has largely been driven by Chinese regulatory policies to limit steel production. Rates will probably remain muted in the seasonally weaker first three months of 2022. But the Chinese government has announced additional stimulus that suggests it is focused on economic stability in the coming months, to offset weakness in the real estate market, Jefferies said. And global economic growth and port congestion are still supporting rates.
The tight container ship market has also resulted in more cargoes, such as bagged rice, being transported on dry bulk vessels instead. Additionally, some open-hatch Handymax are being loaded with containers to return equipment back into the Pacific markets.