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Positive Momentum Evaporates from the Dry Bulk Market

The dry bulk market’s upwards momentum seems to be a thing of the past, as market observers brace themselves for a couple of rough months ahead.

According to Mr. Thomas Chasapis, Research Analyst with Allied Shipbroking “having closed of the first month of the final quarter of the year, I would say that the previous enthusiasm seems to have evaporated now (to some degree at least). As we discussed in previous market views, the hefty collapse in freight rates for the large Capesize can be seen as a mere reflection of this. It is true, that in a year-to-date basis, the Capesize segment indicated several problem signs, persistently being the main underperformer of the dry bulk sector”.

Allied’s analyst added that “moreover, the current uninspiring trade flows from the side of iron ore, coupled by the blurred state noted in China’s real estate market (ever since the Evergrande situation), it is hard to see how any sort of stability and positive momentum could be expected to remain. Thinking about this turmoil, are the remaining size segments, given that they are in theory more diversified and less dependent from China’s iron ore demand levels, relatively immune to this negative pressure of late?

Source: Allied Shipbroking

The emphatic trajectory in freight returns since the onset of the year has somehow derailed any sort of discussion surrounding volatility and market risk. In a bullish market, any form of volatility does not easily raise concerns. Moreover, thinking about typical statistical volatility metrics such as standard deviation, which treats both upward and downward movements equal, would probably “fail” to give a clear review in respect to negative risks present in the market”.

Chasapis also noted that “the below graph uses the Ulcer Index (UI) as a technical indicator in order to give a better view of the current momentum of the freight market’s downside risk for all separate size segments. On a short-term basis, we witnessed a significant movement in the UI metric across all different size segments during the past couple of weeks or so. The Capesize market showing excesses in terms of risk, with the (rather surprisingly) Supramax following second and being close to a period high and well above its respective year-to-date mean figure. Notwithstanding this, we are still at a very early stage of the curve to fully argue any sort of strong trend being noted. However, when coupled with other indicators in the market such as the FFA market, which has experienced a sharp correction over the past couple of weeks or so, we see more and more indicators converging on the idea of a much riskier market taking shape in the near term”, Allied’s analyst concluded.

Source: Allied Shipbroking

Meanwhile, in the dry bulk market, in the Capesize segment, “the downward correction in freight rates held this past week, with the BCI TCA falling to US$36,065, still in the high front compared to levels seen over the past decade. The scale down noted in interest for voyages in both the Pacific and the Atlantic basins had as a result the gradual build up of tonnage lists. Owner sentiment has now lost some ground, with a new balance expected to take hold in the market sooner or later”.

In the Panamax segment, “a downward trajectory was seen here as well this past week. The BPI TCA slid to US$35,061/day, falling by 10% on a w-o-w basis. The diminished demand for cargoes in the Pacific basin led owners to request lower numbers during the week, with NoPac voyages posting the greatest losses. In the Atlantic, a decline was noted as well, albeit losses were trimmed, as a fresh series of enquiries for grains transportation was witnessed during the latter half of the week”, the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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