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Dry Bulk Market: “Cracks” Are Starting to Show in the Capesize Segment

The dry bulk market’s rally has come to an abrupt end since reaching a 10-year high at the start of October, losing close to 45% since. In its latest weekly report, shipbroker Allied Shipbroking said that “the Capesize market has witnessed an excessive level of volatility as of late. Being a “late bloomer” in this year’s dry bulk rally, it has managed to plot an extraordinary course since the mid-summer season, reaching a decade high peak in early October. Since that point the market has noted a sharp correction losing close to 45% of its value. The year has in general shown an extensive amount of volatility and uncertainty, yet it seems that recent developments in China have started to unveil the “cracks” present in this post-pandemic rally for the Capesize market.

According to Allied’s Head Research & Valuations, Mr. George Lazaridis, “much of this positive drive in the market has been mainly attributed to the fast-paced economic recovery noted in China since mid-2020. This of course has further been fed by major disruptions in supply chains, lack of fleet growth in the dry bulk sector as a whole, as well as very loose monetary policies across most of the world’s major economies. However, the large majority of these latter factors have been mainly supporting strong freight market conditions for the smaller size segments”.

Source: Allied Shipbroking

Lazarids said that “the iron ore trade, one of the two major trades that the Capesize market heavily relies on, had been “dragging its feet” for some time now in terms of traded volumes and relative to what the rest of the dry bulk trades were doing. Nevertheless, the freight market performance was still at very respectable levels when compared to the performance noted over the past 5 years. Then suddenly during the summer months a sharp resurgence was noted, driving freight markets into a wild frenzy and leading to an extraordinary high being noted in early October. Yet given the negative events of recent that have been unfolding in China, this stellar performance is under considerable threat now”.

He added that “the real estate market, that is a major back bone for internal demand levels for steel, has been shaken considerably by the Evergrande debacle, which is still ongoing and continues to have ripple effects. At the same time, the energy crisis noted of late has also caused considerable issues in terms of coal supplies in the country (although the majority is focused on thermal coal), leading to severe supply-side constraints for local steel producers. All this has had a sharp negative shock on the Capesize freight market which most likely will continue to hold over the coming days. At the same time it has brought center stage the issue that the dry bulk sector will most likely face as a whole over the coming months. The sharp rise across the board of most commodities has been a windfall for exporters, but it has started to take a considerable toll on the global economy”.

Source: Allied Shipbroking

Lazaridis concluded that “inflationary pressures are going to be a strong dampener on economic growth moving forward, having already shown such signs in China, and is likely to ease back trade growth now that we have already reached above pre-pandemic volumes for almost all of the dry bulk commodities. Yet, given the small orderbook levels and the slow fleet growth figures still being noted in this sector, the “normalization” process is looking right now to be a long and drawn out one.

Source: Allied Shipbroking

When compared to freight market performance of the last decade, we are still looking at expectations for a market to be able to preserve a very positive tone. It is only when compared to the most recent highs of this year, that we may find ourselves underperforming. The question beyond this point is as to how well global markets will be able to tackle these challenges and better utilize the easing of both monetary and fiscal policies to drive up economic growth moving forward. A strong challenge to face right now, with big bets riding on a positive outcome”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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