Lackluster Dry Bulk Market to Persist to the End of 2018
Is it the trade war, or a shift in market fundamentals (supply-demand)? Whatever the case, the recent freefall of the dry bulk market came as a surprise or maybe not?. In its latest weekly report, shipbroker Allied noted that it was “a month of sharp corrections and great asymmetries for the dry bulk sector, with the overall overview of the market shifting rapidly from a state of extreme bullishness to bearish in no time at all. Not long-ago, statements like robust sentiment, modest orderbook, sustainable fleet development, robust global economic growth and seaborne trade were some of the favorites topics discussed by most optimists in the market. But now, given that the scene has changed completely, and the upward momentum has faded away, what can we expect from the blurry picture presented in front of us?”
According to Allied’s Research Analyst, Mr. Thomas Chasapis, “at the beginning of September, a mere breath before the start of the final quarter of 2018, the exuberance was become apparent in the paper market, given that contracts reached levels of even above US$ 26,000/day for the average of the BCI-5TC for 4th quarter period. At that time, and given that the previous year, for the same time frame, the actual market managed an average figure in the region of US$ 22,700/day and the market was already on an upward path throughout 2018, the level being dis-cussed seemed rather fair to most”.
Chasapis noted that “things were already turning sour however in October, with earnings averaging out at US$ 18,600/day and it quickly becoming obvious that the Capesize segment wasn’t going to carry out its promise as originally thought. But things didn’t stop there, and from the start of this month the overall segment was on a sharp downward spiral, reaching even at levels that brought back memories of the collapse in the dry bulk sector of 2016. So, to the very least we can say that the market is in a “weird” state. The FFA market is now in a state of turmoil, showing steep corrections in respect to forward returns, even for very forward contracts. On a month-on-month basis, volatility for Capes has skyrocketed by almost 184% (using the BCI benchmark index), breaking a long period of convergence towards a more stable state”.
“Yet what must be stated is that it would be prudent not to rush back into an overly bearish tone, on the back of just recent trends in the dry bulk freight market. It is important to mention that other segments haven’t shows this kind of softening in their average figures. Both the Panamax and Supramax indices witnessed a decline of just below 14% in their mean on a month-on-month comparison. So, given the influential attribute of the Capesize to the overall sector, the impressive resistance seen in the smaller subsegments can be translated in two different ways, either that there are strong fundamentals able to bear periodical negative shifts (i.e. minor bulk commodi-ties are holding better), or we are speaking of an isolated and overexaggerated incident and the market will recover back to normality fairly quickly. For the time being the market is once again covered in shrouds of uncertainty, with most interested parties having already altered towards a more conservative attitude. All-in-all, given that we are in a strong seasonal point in the year, we would expect that a swift recovery could take place, with the overall market, although, most probably finishing the year at mediocre levels given the extent of the downturn noticed these past weeks”, Chasapis concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide