We downgrade our recommendation on
) to Underperform based on current volatile conditions of the
shipping industry. The drybulk shipping and oil tanker industry
are facing severe challenges as the vessel rate collapsed even
below the rate during the recession.
We believe the sole reason for this dismal condition is the
sheer increase of vessels under operation that resulted in
intense price competition.
Meanwhile, difficulties for DryShips continue with the release
of dismal financial results for the third quarter of 2012. Strong
performance of the company's majority-owned deepwater oil
drilling unit -
Ocean Rig UDW Inc.
) was more than offset by tepid results of DryShips' drybulk
shipping cargo division and oil tanker division.
We believe economic headwinds, a slowdown of the Chinese
industrial sector, and fluctuations in oil prices are the major
near-term concerns. We do not find any immediate growth catalyst
Capesize vessels, which are mainly used for drybulk goods,
faced the major brunt of this competition. In the spot market,
capesize vessel rates fell below the operating costs. In
contrast, the capesize vessel rate was a massive $40,000 per day
just a couple of years ago when the economy was reeling under
We believe the continuation of the extremely low spot rate may
also bring down fixed time charter rates. This may severely
impact the overall finances of DryShips.
In the previous quarter, the realized average daily time
charter equivalent rate of DryShips in the drybulk segment was a
mere $12,727, a stiff reduction of nearly 52.4% year over year.
The Oil Tanker segment also follow suite as the realized average
daily time charter equivalent rate was down 17.7% to $13,978.
DRYSHIPS INC (DRYS): Free Stock Analysis
OCEAN RIG UDW (ORIG): Free Stock Analysis
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