Capesize rates have climbed out of the pit since April and stocks have responded in kind.
However, with rates for capesize bulkers touching $15,000 per day last week analyst Jonathan Chappell believes the best of the bounce has passed for now.
“We expect rates to essentially flatten out at this point with likely volatility from month to month bringing rates below current levels and also potentially slightly higher at some point in what has historically been a seasonally stronger fourth quarter,” he said in a report.
“As a result, we believe investors should remain on the sidelines for most of the dry bulk stocks as valuations are now roughly in-line with our NAV-based price targets.”
Chappell says a return of sustained profitability in dry bulk is “at least two years into the future and the risk to any recovery skewed to the downside as China's economy continues to slow”.
“We believe it is too early to call the bottom on the dry bulk stocks and we generally remain on the sidelines,” he said.
Chappell cut Diana from hold to sell despite noting it has the best balance sheet among public dry cargo owners quoted in the US.
“Liquidity is not an issue for Diana, nor does the company need to raise equity for survival. But, as we stated a few months ago, since when is not going bankrupt a reason to own a stock?” the analyst said.
“Given its strong balance sheet it would be expected that Diana would attempt to retain high operating leverage to any uptick in rates; however, that could not be further from its operating strategy.
“Rather, Diana has covered 96% of its 2015 operating days with time-charter contracts, nearly all of which are at money-losing levels.
“Thus, even during periods of rate spikes, Diana is locked in at steep (and steepening) losses.”
