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Dry Bulk Market Could Be Set for a Sustainable Rebound During 2021

The fundamentals for the dry bulk market seem to be improving as we entered 2021. A moderate dry bulk fleet growth during 2020, combined with improving demand, could set the tone for this year. In its latest weekly report, shipbroker Allied Shipbroking said that “the rally noted during 2020 in the dry bulk commodities has spilled over onto the New Year, with iron ore leading the way as prices continue to soar. Prices for iron ore reached today US$ 172.13 per tonne despite a small drop of US$ 0.93 per tonne, keeping their nine-year high record. This leap into the new year has helped generate considerable optimism in the market, while with all this positive momentum, Capesize bulkers have been quick to capitalize on this trend, with freight rates gaining further this past week”.

According to Allied’s Head of Research & Valuations, Mr. George Lazaridis, “this positive momentum in Industrial metals has gained pace throughout most of 2020, with most having recovered to pre-pandemic levels and looking firm in keeping their price rally at least throughout the first quarter of the year. Yet despite all this optimism there do seem to already be a few backstops in play that could momentarily dampen all this positivity during the course of the coming months.

For one, we have a considerable increase in finished steel prices, which are now also trading at record levels, due to these considerable increases in in core feedstock, namely iron ore. Sooner or later, this rise in steel prices will start to have a negative impact on iron trade, as steel mills see their margins squeezed further and scale back their production slightly. The issue at this stage seems to be that although demand for finished steel products is improving and is set to surpass a 4% growth rate this year, at the moment it seems to be having trouble keeping pace and catching to the quick rise being noted in prices”.

Lazaridis added that “at the same time and given that all this demand frenzy for iron ore has (more so than usual) been primarily driven by China, this year’s Chinese New Year market dip could be “deeper” than what is typically witnessed (that is excluding last year where we were facing the initial consequences of the COVID outbreak). This is more so proving to be the case as the number of new COVID cases and Deaths continue to rise in both the US and Europe. Yet despite both of these short-term “backstops” at play, the market fundamentals for dry bulkers seem to be very promising for the year. With demand for industrial metals showing signs of further gains during the year and possibly being leading indicators to the rest of the global economic recovery effort that we hope to see, demand for dry bulkers is likely set for a fast-paced growth”.

“This positive effect may well compound further if we see the US and Europe take further and more aggressive quantitative easing programs during the course of the year, something that will most likely spur further infrastructure investment in the short-run. On top of this, we have seen a very manageable fleet growth take place during 2020, with the total dry bulk fleet having grown by just over 3.09% while the Capesize fleet has increased by 3.4%. Given the current orderbook at play, this number is set to drop further during 2021, given that we have an orderbook to fleet ratio of 7.05% for Capesize vessels and 5.33% for the total dry bulk fleet. Therefore, given all we are seeing right now it looks as though the “numbers” are stacked in the dry bulk’s favor. Yet given all that we have experienced over the past 12 months, it is easy to see how it is that there are so few in the market right now who wish to throw caution to the wind. Fundamentals can just as easily be turned on their head. There is ample potential, but this is a game of focus and quick reactions and agility are as always a prerequisite”, Allied’s analyst concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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