Dry Bulk Market to Face Assymetrical Impact from COVID-19
According to Mr. Thomas Chasapis Research Analyst with Allied, “with an ever-growing hype as to how the market would develop during final quarter of the year, the shock noted in market sentiment of late has been considerable. Let’s however be more specific and start off with the freight market developments of late. Realized returns experienced a considerable hit during the past week. The Capesize 5TC figure has little resemblance to what we were seeing at the very start of October, pushing concerns over what we could expect to see next. Noticing such a sharp correction at such an early stage in the 4rth Quarter, has already put an end to most “over-bullish” expectations of potential market developments”.
Allied’s analyst added that “moreover, witnessing the fact that the correction has now “slowly” spilled over onto the smaller size segments as well, it seems that the problems being faced are far deeper rooted than what is noted in most of the typical ups and downs of the market. Given that spot freight rates are prone to fast paced exaggerations, the excessive noise this leaves behind leaves little room for any “clearer” trend analysis to be undertaken. As such, takin a stroll over to the FFA market might give us a better hint of what to expect from here on out. Even though we are speaking of a very specialized market, with its own unique environment and dynamics, it can still be a very helpful tool of forward sentiment (free of the excessive noise typically captured by the main freight market)”.
Chasapis added that “the current closing numbers for contracts with settlement within this year have witnessed a strong hit since the start of this quarter, especially for the bigger size segments. The main worry however isn’t over the change in direction, but more so as to the level of this change. In a mere 2-week period, in which the freight market didn’t move in the direction many had anticipated, we saw a considerable amount of pressure being placed on forward years (that were already at relatively “conservative” levels). Moreover, the almost 20% and 15% correction in closing figures for the 4Q20 figures for the Capesize and Panamax contracts respectively, is a very large correction to be had even when taking into consideration what has been seen in the actual freight markets. During previous weeks, we had pointed out to how asymmetrical closing prices are for forward contracts with expiration date within the year against those with an expiration date in the early months of ’21”.
According to Mr. Chasapis, “seeing this correction now, it seems that there as a considerable chronological misplacement as to when and by how much the evolving Covid-19 effects would be on the market. In previous reports, we also took note of the good momentum seen in the secondhand market (in terms of volumes). Given the positive trajectory noted in the freight market during the summer period, the boost in transactions was quick to emerge, nourished by a much healthier buying appetite that flourished. For the time being, the SnP market continues to hold its trend, given the plethora of fresh deals still coming to light. However, it is still unclear as to whether this level of activity is solely derived by strong appetite for new business, or by an asymmetrical distribution of volume, with many being in a hurry to “close” their positions for the year”, he concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide