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Dry Bulk Market: A Long-Term Rebound Remains an Enigma

The dry bulk market remains a conundrum for those involved, as the course of freight rates hasn’t been all about fundamentals, with more factors entering into play. In its latest weekly report, shipbroker Allied Shipbroking said that “having reach the midpoint of the year, it seems to be as good point as any to reflect on what we have seen in the year so far in the troubled dry bulk market. If we just take a moment and observe the current levels of the main dry bulk indices, we would see that we are relatively “close” to those levels witnessed at the close of 2018. So, can we say that the current trajectory is comparable to that of the very beginning of the year? The answer would be an emphatic “No””.

According to Mr. Thomas Chasapis, Research Analyst with Allied, “moreover, given that realized earnings, at this exact moment, are relatively “good” (while using the closing figures of 2018 as a base), why is there such a “poor” feeling being expressed towards the market? Excessive levels of uncertainty and risk could be a rather good respond. Notwithstanding this, asymmetries in sentiment, high volatility and the risky nature of the shipping are nothing new in the shipping industry and are usually described as core characteristics. However, it is on rare occasion that see this level of disconnect between these variables and other core fundamentals”.

“Let’s take things from the start and look more closely at what we have seen this year so far. The market started off the year with a very bad momentum, with most size segments showing strong signs of a sharp drop taking place. In fact, 1Q2019 was the worst quarter (in terms of returns) since the very distant 3Q2016. Yet, during 2Q2019 we saw the market recover relatively quickly, with the Capesize segment witnessing huge jumps the past couple of months (the average figure of the BCI – 5TC rose in June by an impressive 152.97% when compared with that of April). Despite this rally though, the mean level of the BDI index remained below the 1,000bp mark (898bp to be precise) for the first half of the year. This highly turbulent scene in the freight market has left a strongly negative after taste to most in the market. Over the previous 2 years there was a feel that the market was moving towards a fair recovery, but also converging towards higher stability and more positive overall fundamentals taking shape. Most seemed to be optimistic that 2019 would turn out to be an even better year for the dry bulk market. Instead it seems that we have come face to face over the past 6 months with relatively poor returns, bearish sentiment, high volatility and fragile market dynamics”, said Chasapis.

He added that “looking at the BDI on its own, we have seen a degree of variation relative to the average value rise in 2019 by 57% when compared to the whole of 2018. Taking this point further by using standard deviation as measure for volatility and taking a look at the Handysize market which is theoretically the most stable size segment, we see this figure rise by 52.5% in 2019. All-in-all we should stick to the positives for the time being. The market has already recovered by a fair amount, underlying the fact that there is potential for even better market conditions to take shape before the end of the year. Yet, it is also true that the market must reach new peaks, in order to be at least on par with last year’s performance. The paper market (as a measure of forward sentiment) is already on an upward momentum in terms of closing numbers for the final 2 quarters of 2019 for most asset classes. Hopefully the market will follow through on this promise, and good numbers will be achieved (a firm final quarter should be able to do the trick). Nevertheless, a caveat still lays at the market’s core, given that returns in absolute terms only tell half the story while more thorough risk-adjusted returns are more robust metric to show the true potential the market holds (for the long-term at least)”, Allied’s analyst concluded.

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