Sector Analysis of the Dry Bulk Shipping Industry: A Fundamental Sector Analysis of the Dry Bulk Shipping Industry and a Financial Valuation of Golden Ocean Group and Other Key Industry Operators

Anders Enger Dyrdal & Thomas Brakstad Løberg

Student thesis: Master thesis


The dry bulk shipping industry is currently struggling with freight rates well below OPEX. The market imbalance may be attributed to challenges on both sides of the market equilibrium. Demand for the two most important commodities, coal and iron ore, have both decreased . Iron ore experiences decreasing demand growth from China while coal is going through some more fundamental challenges. However, the main contributor to the market imbalance may be attributed to the oversupply of vessels in the market, which are at record high levels due to large ordering sprees from the shipowners during 2013-14. The number of vessel lay-ups and demolitions are also at record high levels, underlining the severity of the current market conditions. The current cycle seem to have the characteristics of a “supersycle”as it scores significantly higher on four out of five comparison variables. With the latest plunge in the freight rates, the dry bulk operators are having severe trouble creating returns to their shareholders. Golden Ocean has experienced a drastic drop in the stock price during 2015 and it is estimated that it will see additional 7% downside. The stock is downgraded to USD 0.99. All of Golden Ocean’s closest peer-companies reported negative operational profits in 2015 and are under pressure in meeting with obligations. A net asset valuation indicates that all of the companies except Diana Shipping are trading at a discount compared to asset values per share. The average ratio between the peer companies share price over net asset value per share is 0.33 whereas Golden Ocean has a P/NAV of 0.86. It is expected that 2016 will be a rough year throughout the whole dry bulk sector. Golden Ocean is expecting 14 new deliveries whereas none of these are expected to earn a rate beyond cash break even in 2016. It is not expected that the company will either sell or scrap vessels as the fleet is highly competitive and relatively young. As a glimmer of hope in the current depressed marketthere are clear indications of the market being at the bottom of the cycle, the market trough, and is preparing for a recovery in the market balance. With record low orderbooks and a 2-3 year delivery time, the net fleet growth is currently “capped”. Considering the record high levels of scrappings and demolitions we might see a negative net fleet growth in the near future which would result in higher freight rates. There are not much left of downside for Golden Ocean before the company would need to consider a financial restructuring plan. The share price is highly sensitive to factors such as terminal growth rate, discount rate and operational excellence. On the other side, a quicker recovery than anticipated will turn out profitable as the company have a competitive fleet and a strong management. Due to its record low share price there is a very risky but potentially large upside.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final ThesisMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2016
Number of pages183