A "Perfect Storm Is Coming" Deutsche Warns As Baltic Dry Falls To New Record Low

Tyler Durden's picture

Following disappointing China PMI data and a collapse in US ISM Manufacturing imports data, the fact that The Baltic Dry Index has collapsed to fresh record lows will hardly be a surprise to many. However,as Deutsche Bank warns, a "perfect storm" is brewing in the dry bulk industry, as year-end improvements in rates failed to materialize, which indicates a looming surge in bankruptcies.


At 468, The Baltic Dry Index is now at a new record low...


And US Manufacturing imports suggest things are getting worse, not better...



Which leads Deutsche Bank to warn of...A Perfect Storm Brewing

 The improvement in dry bulk rates we expected into year-end has not materialized. And based on conversations we've had with several industry contacts, we believe a number of dry bulk companies are contemplating asset sales to raise liquidity, lower daily cash burn, and reduce capital commitments. The glut of "for sale" tonnage has negative implications for asset and equity values. More critically, it can easily lead to breaches in loan-to-value covenants at many dry bulk companies, shortening the cash runway and likely necessitating additional dilutive actions.


Dry bulk companies generally have enough cash for the next 1yr or so, but most are not well positioned for another leg down in asset values


The majority of publically listed dry bulk companies have already taken painful measures to adapt to the market- some have filed Chapter 11, others have issued equity at deep discounts, and most have tried to delay/defer/cancel newbuilding deliveries.


The additional cushion, however, is likely not enough if asset values take another leg down; especially given the majority of publically listed dry bulk companies are already near max allowable LTV levels.


The move to sell assets in unison can lead to a downward spiral, where the decline in values leads to an immediate need for additional equity to cure LTV breaches.

Source: Deustche Bank

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The Merovingian's picture

Straw, meet Camel's back!

Looney's picture

I’m waiting for the day The Baltic Dry Index turns negative.

Hey, the Fed is still drooling over the Negative Rates, so….  ;-)


_ConanTheLibertarian_'s picture

Shipping everything back and forth and back etc. should help the BDI and the oil price. Problem solved. Now go back watching CNBC and Jersey Whore you smartass.


StackShinyStuff's picture

It's Different This Time!!  What is ya ign'ant?

I AM SULLY's picture
I AM SULLY (not verified) Looney Jan 5, 2016 9:57 AM

THANK YOU - because that just gave me a funny thought ...


(that's right)

(a negative bdi - means we have to give back all our HD tvs and smart phones)

Looney's picture


You forgot one thing though - the NEGATIVE taxes (to be paid by .GOV)


PTR's picture

Can we also give them back all the tainted food shipped to us?  (Though how much you want to bet that somewhere along the way of ownership, it's the same companies making stuff over here?)

yrad's picture

 This year, I am supporting M2. Save, save, save.

stumbLebum's picture
stumbLebum (not verified) The Merovingian Jan 5, 2016 9:56 AM

How many ZH "Perfect Storm" articles do we have to read without the storm?

Ignorance is bliss's picture

Your too dumb to post on this site but fortunately Mark Dice has a candy bar for you.

I AM SULLY's picture
I AM SULLY (not verified) Ignorance is bliss Jan 5, 2016 11:09 AM

It's "you're" NOT "your".

(but excellent judging on your part)

Kprime's picture

at least he got the second o in too, not to. lol

Iam_Silverman's picture

"(but excellent judging on your part)"

You don't get it, do you?  He is very happy (Ignorance Is Bliss) to judge others.

StackShinyStuff's picture

Next time just use "yer" if you're not sure

new game's picture

most economic indicators are based on sound money. we don't have much time as the debt/fiat machine is about to spit out worthless dollas making these time honored indexes very relavent!

don't be fooled by the fact thaty nothing seems to be relavent. the swan is present! the swan never went away. the swan will arrive...

DonutBoy's picture

That's true - but it cuts both ways.  In the case of BDI holding all else equal a weaker dollar would increase it.  So if the BDI is dropping to new lows without sound money, the actual cost of shipping good is falling faster in real terms.  The BDI includes the price of the oil to fuel the ships - so it gets a double-whammy from falling commodity demand.  Less goods to ship and a lower fuel surcharge.

Element's picture

And in the year 2016 a doubter did arise, and did harden many hearts, and did mock the graven calf, saying all manner of curses, and did smite and rend his garments saying evil of the holy words of the bloggers. And the people were stirred up to wroth and did say among themselves that a blasphemer hast come into our midst to deceive us! Let us lay our hands on him and throw him to the money changers that they may rend him and bind him to a goat, and send him to die in the wilderness, so the lion may devour him and the crows may become fat on his carcass and so the sand does hide his bones.

Jethro's picture

All we need now is sack cloth, ashes and wailing and gnashing of teeth.

Kefeer's picture

It is a controlled slow burn for now; the world has rejected the US Treasuries (net) and the illusion can only keep going for so long.


For example, if the Saudi's were to announce they will accept the YUAN, YEN, Pound or Euro for oil, then the world awakens to the death of the petro-dollar.  Another, if China were to announce it has 28K tonns of gold and begins using gold settlement notes for trade, then the USD is officially dead.


The FED will do everything it can because it is a Presidential election year to keep the illusion alive, but even they are limited.  If the wold makes the USD rejection "official", which they have not, but by their actions they have done so unofficially...therefore it is just a matter of time and we are running low on time.  If 2016 is not the year of total implosion, then 2017 will be.  I'm 99% certain I am correct.

indygo55's picture

Het Stumb, your BIO and 2 weeks being here is all I need to know about your comment. The long wait for the storm is because it will be THAT fucking bad. You need to understand these things. 

Jethro's picture

Well, it's a money storm, and an equity storm, and a commodity storm......and it's churning away right now like a slow motion hurricane.

GotGalt's picture

stumbLebum - Unless you are purposely trying to be dumb and or be a parody poster (in which I apologize as I do no detect the sarc), I must say you are of the more dense posters I've come across on this site.  Have you taken a look at the publicly traded dry bulk companies out there?  Here's a hint, look at the 52-week chart of SB, SBLK, SALT, NM, etc.  Note that pretty much all are pricing in big bankruptcy concerns over the next 12-24 months or so. 

You may think your particular schtick is amusing, but it really just comes off as laughably ignorant.

NEOSERF's picture

The best we should be hoping for is a soft landing but the Fed and their 4 horsemen are intent on propping up the markets like that alone will keep people going to restaurants.  Should be allowing 2016 to be a nice slow 15% decline or risk a discontinuity in the markets one day where it takes 25-30% in a week.

FreeShitter's picture

Cant we just CTRL P BDI?

_ConanTheLibertarian_'s picture

Let's change the name to Bourbon Dry Index. We need more drinking.

Nobody For President's picture

BBBDIs: Booze, babes, bullets dry index.

(Cept Booze is wet, and babes too if it is done right.)

Mark Mywords's picture
Mark Mywords (not verified) Jan 5, 2016 9:49 AM

NFL playoffs! Wooooooooooooo!!!!!

"Baltic what? Honey, take care of that crying kid. I'm playing with my gun. No, not the one attached to me - it quit working without a pill a long, LONG time ago. And I can't even find it anyway." - Average Idiot American

ebworthen's picture

2008 all over again!  The corrupt bailed out, the moral lashed with a cat o' nine tails!

Ignorance is bliss's picture

They can bail out a business, but they can't fix broken world demand. These ships will dry dock and rot somewhere. We won't see an increase in demand anytime within the next decade unless there is a war, in which case they may rot at the bottom of the ocean. A bail out is a bandaid for a decapitated limb.

Nobody For President's picture

Naw, here is the fix:

Load up all those empty ships with Syrian refugees and ship their ass to the Port of Los Angeles:America's Port (TM)


stumbLebum's picture
stumbLebum (not verified) Jan 5, 2016 9:52 AM

We're in the green today, Zeroes. 2016 will be a good to great year in equities.

And your families will be poorer than ever.

Happy New Year!

Squid Viscous's picture

you mad Bro? how much you lose since Santa left town?

Element's picture

Should we lower rates?

Early Retirement's picture
Early Retirement (not verified) Jan 5, 2016 10:08 AM

How were they bullish in the first place? I mean, that is absurd. Dry is basically Coal and Iron Ore, basically China GDP. They are complete hacks.

Hal n back's picture

lets not forget that oil tankers are not used for shipping but storage.

IridiumRebel's picture

Meh...Ma Cheefs is in da playoffs and dees teknical mezurments means nuffin no mo.


TheDanimal's picture

I bet one could make a killing scooping up one of these excess cargo ships at a bargain basement price and using it to shuttle refugees around.

Fullthrottle's picture

Hell just one load would be enough to retire on. Good thought. A cruise ship without windows. 

Janet Shalom Bernanke's picture

Broke back markets brought to you by your Fed!

the destroyer of the American E-con-o-me since December 23, 1913


We'll keep doing what we do: mispricing assets and risk, distorting the investing landscape, mis-allocating resources to unproductive uses, incentivizing overleverage and excessive risk taking, rewarding abhorrent greed, and punishing savers -- all in the name of helping you, Main Street.  We mean, the "main" street,  Wall Street.


katchum's picture

As long as we have a job and prices go lower I'm pretty happy.

Kefeer's picture

Are "we" two people?  What prices are going lower?  Insurance of all sorts? no  Food of all sorts? no  Medicine of all sorts? no  Utilities of all sorts? no  Taxes of all sorts? no  Gasoline?  Well that savings of $20 per week sure offsets - Not!

katchum's picture

It's funny, gold, silver, oil, potash, corn, wheat, iphones, nat gas, platinum, palladium, rare earths, copper, aluminum, zinc, China real estate, all are going lower. Yet we feel like prices are going up. I think it's the government's fault as they tax too much.

Martin T's picture

PEs who played the "recovery" theme (when there is none) using their "dry powder" to play the structured finance shipping game in 2013 are truly and entirely screwed. They thought they would make a quick buck, now they are stuck with the "sinking" ships...Good luck...

Schroedingers Cat's picture

I just hope it makes a great big farting sound when the whole thing collapses.

Zero-Hegemon's picture

Long slave labor in Bangeladesh ship breaking yards

Dg4884's picture

Is it too early to take another Codine pill?  Reality means nothing in this market.

Goldbugger's picture

The worldwide collapse continues with propped up indicies. The Great Reset commith.

Peter Pan's picture

A shipping broker made me fall off my chair the other night when he told me that he closed a deal for transporting iron ore from Western Ausralia to China for $2.90 a tonne.