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Dry Bulk Market is Primed for a Rebound

Most analysts seemed to be in agreement that after the Chinese New Year festivities, a rebound would be on the cards for the dry bulk market. Well, this time has come for the market to exhibit some sort of reaction. In its latest weekly report, shipbroker Allied Shipbroking notes that “optimism has started to slowly flow back into the dry bulk market, with many in the market showing renewed optimism as the Pacific basin starts to gain quickly in enquiries and activity after the end of the Chinese New Year festivities. It may well be way too early to tell if the market has what it takes to really lift freight rates at the moment, especially as we are still at a relatively soft seasonal point, with the “annual grain” rush in the Atlantic still far away”.

According to Allied’s George Lazaridis, Head of Market Research & Asset Valuations, “there have been however several positive indications in the market that things should prove considerably better in the first half then what we had seen both in 2016 and in 2015. Commodities have been pulling their weight lately, with the increased momentum in demand still keeping things firm. A good example of this have been the recent figures coming out of China whereby we witnessed the second highest monthly increase in iron ore imports during the first month of the year. This drive has been in part by the effort made by steel mills to replenish depleted stockpiles, though more importantly it seems to be a continual drive for greater reliance in imported supplies displacing the higher cost local production. This latter point is what gives greater confidence as to the prospects of the market moving forward along with the aspect that despite the large number of closures in steel mills in China, Chinese steel capacity actually increased in 2016. This move is in line with what we have been seeing in terms of prices for both iron ore and steel, both of which have shown a resilience over the past six months and have managed to hold the gains made during 2016. Similar moves have been made in the coal market, with major producers in both India and China shifting their focus to imports rather than locally sourced supplies. In the case of the former its largest coal producer, namely Coal India Ltd., has shown a strong intention to acquire coking coal assets abroad, referencing India’s lack in technology to economically develop local reserves”, said Lazaridis.

He went on to note that “however, for all these positive signs in these two main dry bulk commodities, the Capesize market which is the most dependent on their trade has yet to show as quick a comeback after the Chinese New Year as the rest of the market. It has actually been the Panamax and Surpamax sizes boosted by increased trade in the Pacific that have shown a positive spark in the market and have been driving much of the renewed optimism. The hope is that given the recent trends and especially those noted during the latter part of November and most of December, the Capesize market should start to ride on a fair rally that should in turn push the average freight rate up once again. Given the fact that the orderbook in this size segment is minimal and has already showed a relatively slow rate of growth in during the past year, with a fairly modest rate of growth we could easily see rates climb once more”.

Lazaridis concluded by noting that “with all that being said and giving a fair point to the improved demand levels being seen for most of the main dry bulk commodities, once again it is worth pointing out that market conditions right now are fairly unstable with a lot of potential disruptors in the Horizon. Without taking note of the likelihood of these disruptors taking place, it would seem that in the near term they may well be good reasoning behind the small burst in market exuberance”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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