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Dry Bulk Market Enters “Bull Mode”: Is it Sustainable or a Self Fulfilling Prophecy?

The dry bulk market is prone to increased volatility. However, this time around, it seems that the market is gearing up for a new upward cycle. In its latest weekly report, shipbroker Allied Shipbroker said that “it has been more than a year since the COVID pandemic started a series of lockdown measures across the globe. At that time, many market participants in the dry bulk sector will remember how rapidly the overall sentiment shifted sour. It seems to have been relatively exaggerated looking at it in retrospect, but to be fair, it was a rather logical consequence when thinking about the dramatic disruptions and the speed these took place as part of the pandemic. After all, an almost 3-year recovery path in the making collapsed in an instant. So many did the “apparent” thing and started to compare market conditions with those of 2016. However, to what degree a “black swan” event (2020) is comparable with an accumulated demand/supply imbalance (2016) is a whole different discussion”.

Source: Allied Shipbroking

According to Allied’s Research Analyst, Mr. Thomas Chasapis, “now, we come a year later and there is excessive “ruckus” being made of a new period of upward growth. Are markets “ready” to support this in the long-run or is it a mere bull run that is going to run its course. The dry freight market seems rather “lost” in the bullish sentiment of late. In a typical Q1, earnings do experience considerable pressure, that consequently affect annualized average returns. Being at the close of 1Q21, the upward continuation is evidence that the state of the market is shifting over onto a different trajectory”.

Source: Allied Shipbroking

Chasapis said that “evidently, while leaving aside the bigger size segment, for all other main sizes, year-to-date average TCA figures are above the US$ 15,000/day mark, while in comparison during the past few years, the yearly picture in most cases was below the US$ 10,000/day mark. Without wanting to sound over-optimistic and in a rush towards any conclusion, we are probably talking of new theoretical “floors” and “ceilings” being in the making for the near term. With certainty we can support that it is not just a situation of an asymmetrical periodical high return “dissonance”, but we are already talking about a boost that has seemingly already spilled over adequately across the whole dry bulk sector”.

Allied’s analyst added that “it is important to clarify that the current market run doesn’t seem to be a short-lived spike, in line with periodical seasonal high returns that we have been accustomed to in the past. A fair example of this has been the stagnant conditions that prevailed in in asset price levels during 2H20 despite the considerable improvement noted in freight earnings during the summer and autumn months of 2020. All-in-all, we cannot deny the shift being undertaken in the dry bulk sector.

Source: Allied Shipbroking

Making the comparison with global markets, a quantitative easing process will certainly push new investment appetite and consumer spending (especially under the current interest rate regime). However, any “success” will be fully understood when and if we see the different markets respond towards a general and firm economic growth. A risk of a potential stagflation is not beyond the realm of what is possible. In shipping, we have already seen a strong rally in period freight levels, closing numbers in FFA contracts, vessel prices, SnP transaction volumes, as well as in buying and financing appetite. As we have seen in equity markets, the mere perception and belief of a bull market is capable by itself in producing an upward momentum for a prolonged period. Yet it is important to remember that the risk of a more sluggish freight market is still there. From a risk-adjusted perspective, what is of vital importance in the market right now is that any rise in asset prices doesn’t overshoot the market’s long-term perspective by being influenced by any short-term performance of the freight market”, Chasapis concluded.

Nikos Roussanoglou, Hellenic Shipping News Worldwide

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