Dry Bulk Market: Uncertainty Dent the S&P Market

While not much can be said at this point about the supply-demand equation of the dry bulk market, shipbrokers are looking at other factors, which are having an impact in freight rates, trying to gauge its future direction. In its latest weekly report, shipbroker Allied Shipbroking said that “every time the market is in turmoil, the main focus amongst most practitioners in the market tends to shift towards core fundamentals (supply-demand dynamic) and macroeconomic factors, in order to better evaluate their options moving forward and act accordingly. However, given that the current market dynamics have been primarily derived through a series of tail risks (single shock) events, uncertainty seems to be the reigning characteristic that best describes the market right now”.

According to Allied’s Research Analyst, Mr. Thomas Chasapis, “given that we have witnessed some sort of rebalancing (yet it is still very early to tell if this is a longer term trend or just a short lived glimpse of hope), with the BDI having held at slightly above the 1,000bp psychological mark for more than 2 weeks now, it may be worthwhile to move the discussion towards the actual asymmetries (or “right” opportunities – depending on your perspective) existing in the market as of late. Along with this slight recovery noted of late both in terms of sentiment and actual returns, the paper market has also showed gains. It is logical to see an upward momentum in real markets being translated over to the FFA and even at relatively steeper rate”, he said.

Allied’s analyst added that “yet the real mystery seems to be in that we are still seeing a considerable discount when compared with indicative rates being quoted in the period market. So, under a theoretical “ceteris paribus” concept (while all other risk factors are eliminated), we may well be finding ourselves in the midst of a state of “arbitrage” being noted in the market. Given this, the important question should be as to which market is lagging at this point? Or, worse, is either of these markets mispriced? Having taken a good indication of current and to some degree forward sentiment from the side of earnings, another good indication to measure future sentiment and prospects is the Sale & Purchase market. So far for the year we have witnessed a decrease in activity in the region of 22.6% in terms of number dry bulk vessels changing hands, while the percentage in terms of tonnage capacity is 30.7% (a mere reflection of a rather quiet Capesize market)”.

“Given the state of the freight market during this same time frame, this is of little surprise. Yet the real puzzle here is as to how the average age of vessels being purchased has increased considerably, showing how buying interest has focused primarily on more vintage vessels. This is quite counterintuitive given that the purchase of an older aged vessel is like taking a more positive stance on the shorter-term prospects of the market rather than the longer-term. Beyond this we are also seeing interesting developments in the SnP market for the Panamax size segment. A y-o-y 41% rise in the number of vessels sold, with the current yearly average of the BPI being below what it was in both 2018 and 2017, seems, at least, disconnected”, he said.

“Someone could argue that this came because of plethora of sales candidates that pushed the market lower in terms of pricing and higher in terms of volume, but still, given that we face deliveries of more than 200 units up until 2020 (most of these being Kamsarmax vessels), in a market that is more than 50% involved in the coal seaborne trade (a commodity with not a stellar forecast), the reasoning behind this buying spree is harder to see at first sight. With all the above being said, in the short run, the focus should be on the overall prevailing sentiment. Conservatism is good, but when it is accompanied with the “correct” level of optimism. Otherwise the market is in severe danger of self-fulfilling a perilous trend for a longer period than would otherwise be expected”, Chasapis concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide