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Dry Bulk Market Exceeds Expectations, But is The Current Trend Sustainable?

The rally in commodities’ prices has underpinned one of the best dry bulk markets in over five years, given the scale and duration of the existing upward trend. In its latest weekly report, shipbroker Allied Shipbroking said that “things in the dry bulk sector continue to hold at bullish levels, having sustained now impressive levels for 5 months now. While both the freight and SnP markets are on a strong trajectory on the back of highly supportive conditions in the commodity markets as well as access to relatively cheap finance, it is only logical to wonder which (if any) are the downside risks present that could potentially put the current state of the market in jeopardy both in the short-term and medium to long term.

Source: Allied Shipbroking

According to Allied’s Research Analyst, Mr. Thomas Chasapis, “a mere glance at the year-to-date average freight figures and comparing these to what we have seen over the past 5 year, is enough to give you a clear view as to the current “excessive” positive trajectory being noted in the dry bulk market. It has been many years since we last saw such a very firm market holding for such a prolonged period. Beyond that, these earnings have taken shape in a far less risk regime, as measured by the coefficient of variation metric.

Source: Allied Shipbroking

However, in such a dramatic shift in trend, could we be amidst a “base effect” risk? When comparing different time periods in any market in order to measure its performance, there is always the risk that depending on which “base” you choose you can easily exaggerate and/or misinterpret the true market momentum and potential. The term “excessive” may sound strict, especially when given the recent trends being noted from the side of market fundamentals”.

Chasapis adds that “all the above, have as a starting base the current commodity trend. The rally that started from the final part of 2020 and still holding to a fair degree, has been the actual driver in the shift in sentiment and fundamental dynamics. However, are there any underlying risks to such a bullish orbit?

Source: Allied Shipbroking

As has already been stated in previous market views, the duration potential of this rally is still unclear. Thinking about how dependent this momentum is to the anticipation of a strong recovery from the Covid-19 pandemic and you can quickly see the exposure present from things not going as expected. Moreover, we should not forget that a steep rally in commodity price levels is not without its cost”.

Source: Allied Shipbroking

“The inflationary pressure can derail things, especially if we see the costs being transferred to end consumers, with a direct effect in consumer confidence and spending levels. In other words, multiple variables must move attuned, with less asymmetries in-between, in order for an upward momentum to be sustained for a longer time period. Does this mean that a small “pause” in commodity market is needed at this point?

Source: Allied Shipbroking

Taking China as a barometer for overall commodity consumption levels, you quickly see that there are some slight indications of things “cooling” off. However, this is a tricky balance, cause any excessive cooling could also set the general upward momentum off course? All-in-all, despite the strong market we are currently in, there are still many challenges to overcome. There is a lot of “noise” observed in global markets of late, with many mixed signals being seen at the same time. Without wanting to sound too argumentative or bearish in view, it should be noted that any bullish period in shipping should not be taken for granted as the new normal. We are currently going through a period of great opportunities that market participants should obviously pursue. However, caution should still be kept, as it is still easy to be left exposed if the “music” were to suddenly come to a stop”, Allied’s analyst concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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