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Is the Dry Bulk Market Underperforming?

Many dry bulk market delegates and analysts were looking forward with anticipation to a rally during the fourth quarter of the year. However, up until now, this scenario has failed to materialize. In its latest weekly report, shipbroker Allied Shipbroking said that “given that we have already assessed the overall performance of the dry Bulk market this year and that we have established to some degree that we are in transit towards a less volatile environment, with more sustainable earnings and robust fundamentals, it seem worth taking on a more thorough year-on-year comparison in terms of performance. This should help put the actual performance into better perspective, given that we now have only 2 months to go before closing off the year. The Baltic Dry Index for the month of October has shown an average figure of 1,545 basis points”, said the shipbroker.

According to Allied’s Research Analyst, Mr. Thomas Chasapis, “at first sight, this seems to be a fair performance, especially when compared with the first 9-months of the year which hovered at around 1,347 points. Furthermore, during the same month back in 2017 we witnessed an average of 1,484 basis points, marking this latest monthly average as a marked improvement compared to both this year’s average monthly figures as well as compared to what we were seeing one year prior. But, let’s focus on the overall trend. This year October showed a 14% increase compared to the nine months that preceded it, while back in 2017, October had shown a 44% increase compared to the nine months it had followed. On this regard, someone could argue that the market has already recovered by a fair extent, making an equivalent percentage change hard to replicate. However, it seems as though the argument at hand is more complicated, with many perceiving that some sort of upper barrier is taking shape. Does this mean that we are facing an overall more stable market, or is there a lack in dynamics for a higher base to be achieved?”, wondered Chasapis.

Allied’s analyst noted that “in the Capesize segment, these comparisons give a slightly blurred tone. For the BCI5TC index, the average figure for Oct ’18 was US$ 18,602pd, showing a considerable softening compared to the same month back in 2017 (US$ 20,913pd), while the relative improvement for the year (Oct against Jan–Sep) was 11%, indicating a rather lethargic start for the 4th quarter. Taking this same comparison for Oct 2017, this increase back then was 65% while for the 4Q as a whole (which averaged at US$ 22,714pd) the overall improvement was even more impressive reaching a percentage gain of 79%. Many can surely point that the production caps in China placed on by the emission targets played a considerable part in these asymmetries. Yet despite this, the market now still shows lack of potential for further boost of similar magnitude to what we were seeing back then”.

Chasapis added that “moreover, given the bullish sentiment witnessed in the paper market just before the start of October, it is clear that the current sluggish pace of improvement took many market players by surprise. FFA 5TC contracts for the final quarter of 2018 reached as high as US$ 26,500pd, a level which was over US$ 10,000 more than the average of all previous months, marking it a peculiar coincidence with that of last year given that the average for the final quarter of 2017 was close to such a level higher than the average of the nine-month period preceding it. If the only measurement to capture the trends in the market is the supply – demand dynamic, we would say that the dry bulk sector is still on the “correct” path. However, reality is far more complex. In a world that moves fast, and prone to instability, things can change rapidly even in the short run. New technologies, new regulations, new players are just a handful of variables, that can alter the playing field, creating new sensitivities and asymmetries in the market. All-in-all, we must take the challenge and respond accordingly, as many interesting things will take place in the upcoming year”, Allied’s analyst concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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