Bulker markets are set for a rebound once China’s economy normalises next year, according to Golden Ocean Group’s chief executive.
Ulrik Andersen uses the word “perspective” more than once while speaking to TradeWinds.
“Okay, we’re going through a bit of a rough patch here, but look at where we’ve come from. The past 24 months have been outstanding,” he said.
“I think we can stomach a couple of quarters where we do not make three-digit million in net profit.”
Quite. For all the talk of weakness, profits — $104.6m for the third quarter — are still at a level that Golden Ocean could not have dreamed of a few years ago. Perspective is all.
Bulker rates have disappointed during the second half of this year as port congestion has unwound, supplying excess tonnage to markets, while Chinese demand for dry cargo imports remains depressed by the country’s zero-Covid policies.
Golden Ocean has kept its focus on taking forward cover where possible and saving money on fuel costs through the use of scrubbers and fuel-efficient vessel modifications. Gains have also been made through the sale of vessels — $21.9m on two ultramaxes that were delivered in the third quarter — and on derivatives.
And then there is the sizeable cash position that Golden Ocean has accumulated, alongside what it has already distributed to shareholders.
“We have been retaining capital every quarter since we started making money in the middle of 2020. We have a balance sheet now with $228m in cash — so we have already a quite significant balance sheet to weather any storm,” Andersen said.
Paying dividends is key to Golden Ocean’s capital allocation strategy, he added, but “you can only pay dividends when you make money — at least, that’s how we do it”.
“If you look at what we are reporting for Q4 on what is already fixed, you can very quickly establish that we will make money again in Q4,” he said.
Golden Ocean has bookings for 75% of its available capesize days this quarter at $23,100 per day on average. Its panamax vessels are booked for 78% of available days at an average daily rate of $19,100.
But expectations for next year are restrained. Trading in the freight derivatives market currently indicates rates of just over $6,000 per day for the first quarter and more than $12,000 per day for 2023.
“Next year, we have said very clearly that it looks like a weak start to the year. I mean, that’s not uncommon. It is seasonally the weakest quarter in nine out of 10 years,” Andersen said.
“But how long that soft market will continue will depend very much on when China discontinues their zero-Covid policy. Because once that happens, the stimulus that has already been employed will work much better.”
Golden Ocean has a low level of forward cover for the first three months of 2023 — just 10% across the whole fleet.
Just 4% of capesize days are booked during the first quarter at an average rate of $21,300 per day. Panamax days have a higher level of cover, with 21% of days booked at $21,150 per day.
Golden Ocean’s results failed to rally enthusiasm among investors on both sides of the Atlantic when they were announced on Wednesday.
In Oslo, the stock settled 10% lower at the end of the day’s trading. In New York, shares in the firm sank by 12.5%.
“The reason for that is pretty simple. It is that the panamax market has offered much better forward value than the cape market for the past couple of months,” Andersen explained.
“The cape Q1 [paper] is trading around $6,000 per day, and we don’t see a lot of downside to those numbers, so that has not been interesting for us to lock in.”
Golden Ocean believes the Chinese economy will revive at some point next year, once the zero-Covid policy is discontinued.
A rebound in commodity demand from China combined with low supply of new vessels should stimulate the capesize market and result in rates shooting up again, according to Andersen.
“It doesn’t take much for this to actually ignite again and doesn’t take a lot of demand growth, particularly when you look at the basically zero influx of vessels that we have, coupled with the IMO 2023 regulations, which also give some inefficiencies,” he said.
Golden Ocean reported net income of $104.6m and earnings per share of $0.52 for the third quarter, which included a $21.9m gain booked on the sale of two ultramaxes.
During the third quarter of 2021, when freight markets were much stronger, Golden Ocean booked net income of $195.3m and $0.97 in earnings per share.
The Oslo and Nasdaq-listed shipowner will pay a dividend of $0.35 per share for the period, just over half of what it paid out for the second quarter.
Golden Ocean’s 56 capesize bulkers earned an average time charter equivalent rate of $22,658 per day during the third quarter. Its 28 panamaxes earned $23,562 per day on average.
