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Dry Bulk Market: Capesize Segment Could Face More Downward Pressure

The dry bulk market is perilously close to ending the year in the same dire manner with which it began it. In its latest weekly report, Allied Shipbroking commented that “on Friday, the average of the year so far for the BDI closed at 1,346bp, almost perfectly attuned with what was noted during the whole of last year. Given also that the Capesize market has been showing a strong resistance to any downward so far, we may well see a modest yearly growth accumulate for the year (however, not as promising as the one that many aspired for one year back). Whether this growth will be enough to cover the total risk (as part of a risk-reward analysis) being faced right now through the excessive volatility the market has gone through remains to be seen. Regardless of the technical analysis one uses, the major step back that has been noted in respect to the market stability and sentiment will most likely follow the dry bulk sector in the year ahead (at least). All the above have already been analyzed thoroughly in previous views, so, any further argument would be superfluous”.

According to Mr. Thomas Chasapis, Research Analyst with Allied, “the truth is that the market lacks direction at this specific point, with the exception maybe being the catch -up rally that was until recently the main “trend” being seen. How do we quantify the market’s confidence at this stage? Sometimes, the figures presented can create a deceptive view at any given point in time, especially when, other statistical indicators seem to be disconnected. Using the core Baltic indices for the different size segments, it is clearer that most of the dry bulk sector is in a much heftier downward spiral than what one would assume at first sight”.

Chasapis added that “for the time being however, it seems as though the Capesize market has many problems “swept under the carpet”. This is all while we are seeing a very different picture presented when looking at the rest of the dry bulk size segments. It is fair to point out that since the start of the final quarter the Capesize time charter average has dropped by a mere 13.8%, while during the same time frame we have seen the Panamax, Supramax and Handysize drop by and astounding 35.8%, 40.3% and 25.4% respectively. Someone can argue that this may be due to the time-lag in trends between that of the Capesize market and the rest of the different sub-markets (a relation that has been well noted in the past), or due to just different seasonal dynamics. No matter what the case however, this level of disconnection seems to be peculiar to say the least”.

Allied’s analyst also noted that “the true answer varies depending on how someone interprets things. A prevailing thought is that we have an amassed appetite (demand) that is holding Capesize rates “exceptionally” high, which simultaneously means that when this fades out, we will see the market easing back rapidly. All this could be due to current price levels for iron ore holding at prime levels to create an opportunistic buying spree, that should eventually subside. Or, we could be at the beginning of a de-correlation between different asset classes, following relatively different demand-supply trajectories. All-in-all, are we in a resisting or a softening market? Maybe a little bit of both. I would stick to the last argument of the previous paragraph. Maybe, less correlation is a good thing at this point. In a market that is currently struggling to find a stable pace, filled with asymmetry in returns even in a tight time horizon, liquidity and solvency risks can be many. In other words, less positive correlation can actually mean that owners can undertake a more efficient diversification, that can smooth out potential cash flow imbalances (to some degree at least). Don’t forget that in the current environment, excess returns can be subject more so to non-shipping dynamics which by their nature are hard to foresee in advance”, Chasapis concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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