DryShips (DRYS, Financial) has had a torrid time in 2014. The stock has lost almost 50% of its value since the beginning of the year, and many factors indicate that the decline may not stop in the near future. Let’s take a look why DryShips could sink further.
Low oil prices
Low fuel prices are a big blow for DryShips. Not only does it harm the essential perception of deepwater boring, it likewise harms the delivery market DryShips is in. As per Peter Sand, boss delivery analyst of the Baltic and International Maritime Council, high fuel prices lead to "abate steaming" to amplify efficiency. Shoddy fuel prices lead to quicker moving boats, which successfully raise the worldwide supply for transportation immediately.
Considering Sand estimates that the worldwide armada is now oversupplied by somewhere around 20% and 25%, the opposite thing shippers like DryShips need is that considerably more supply issues discourage rates. Since DryShips stock exchanges frequently focused around rates (when its Ocean Rig [ORIG] stake is exchanging level), considerably lower rates mean DryShips stock could fall significantly lower.
Third quarter may disappoint
DryShips will most likely release its second from last quarter ahead of schedule. Analysts anticipate that it will report EPS of $0.04; however, that is just as the results are accounted for blended in with Ocean Rig. On a stand-alone premise, the dry shipping business presumably performed appallingly and may cause even this blended assessment to miss seriously, as the analysts didn't alter their numbers while the transportation rates in the quarter remained milder than desires and fail to offer the typical occasional rise in September.
DryShips' method amid the second from last quarter couldn't have been in a weaker position, either. Foreseeing a scorching market subsequent to in any event back in a March meeting, Economou situated the unfathomable DryShips Panamax armada to operate dominatingly focused around day-by-day spot prices, with the desire that these would climb to rates much higher than settled rate contracts would give.
Long story short, a frustrating grain season in South America and some stockpiling by ranchers terrified of their monetary standards brought about a much weaker than anticipated fare season. Brazilian fares of iron mineral neglected to fill the bigger Capesize sends, so there was no overflow impact into the Panamax. The result was repulsive rates especially for Panamax ships, which will bring about terrible numbers from DryShips come November. In the event that the market doesn't like what it sees or the viewpoint given, DryShips stock could be seen plunging further descending.
China has banned the docking of the Valemax ships, which are about twofold the extent of the Capesize ships. This places sending's to support Australia instead of Brazil's. The outcome is that since the course from Australia to China is a large portion of the delivery separate as to Brazil, far less dispatching supply is assimilated. The report likewise notes: "It is demonstration of China's weight in worldwide markets that a one-sided move by one Chinese vested party could have such destabilizing outcomes. The obstructing of the Valemax was the consequence of the discontinuity of China's iron mineral industry, and the [hijacking] of strategy making by a specific vested party, against more extensive national needs."
This highlights exactly how dangerous the dry transportation market is as a rule from a principal premise and in addition how touchy to and subject to China's request the business is. Issues like this are well outside anyone's ability to control and leave a great part of the business helpless before China nowadays. So, I think investors should sell DryShips.
