Fundamental weakness will likely drive continual cash flow erosion and covenant pressure within the dry bulk shippers, Wells Fargo Securities said, and lowered its rating on four stocks.

The shipping sector has been hit hard in the last two years as demand to ship commodities has lagged the supply of vessels.

Analyst Michael Webber lowered his rating on the stocks of Diana Shipping , Genco Shipping & Trading and Excel Maritime Carriers to "underperform" from "market perform". Eagle Bulk Shipping has been lowered to "underperform" from "outperform".

"We expect the dry bulk orderbook to continue to drive material supply headwinds over the through 2012 and 2013 at a minimum," Webber said.

"We believe utilization will remain under pressure going forward, likely moving towards, or potentially below 80 percent, keeping day rates below breakeven levels and likely absorbing any material bump in demand."

The analyst said that given Diana Shipping's strong balance sheet of an estimated net cash position of over $50 million in the second quarter, it may emerge from the dry bulk recession in a better position than most of its peers.

Growth in trades of major bulks such as iron ore and coal is expected to fall to 3.5 percent this year from 12 percent last year. Trade in minor bulk goods is expected to increase by about 5 percent, led by 6 percent growth in movement of cement, forest products, and steel products. (Reuters)