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Upswing or ‘super cycle’ for dry bulk equities?

Dry bulk stocks were the best performers (up 50.3% YTD) among the sectors covered by Drewry Maritime Research and are pricing in 1.34 x NAV on average.

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With time-charter rates also at a multi-year high, these developments have created a buzz and around a potential market ‘super cycle’, according to Drewry.


“The mention of super cycle has increased consistently over the last few weeks, with the dry bulk shipping rates and stock prices providing evidence for the same,” argued Ishan Dafaria, senior analyst, Drewry Maritime Financial Research. “However, it is not just the spot rates and stocks, FFA traders have also reported extraordinary numbers.


“In the second week of February, the derivative dry freight market recorded the best week of the 21st century with trading notional volume exceeding US$1B, since more than 75,000 contracts were traded (data from FIS) across Capesize, Panamax and Supramax segments.

Development of share price to NAV (Source: Drery, Yahoo Finance, DMR, DMFR)
Development of share price to NAV (Source: Drery, Yahoo Finance, DMR, DMFR)

“As commodity prices are surging, many players have been caught short in the rally, thereby pushing volumes up in the short squeeze. This has been the case especially for the Panamax spot market, which has been the highest gainer among all vessel classes on a YTD basis.


“The current rally, which can be traced back to early December 2020, after a firm spot market in Q3 2020, has defied the usual trend of seasonally weak first quarter.


“Larger vessels staged a comeback in 2020, which is now being supported in an equal vigour by the Panamaxes. For example, Diana Shipping (DSX), a mid-to-large vessel owner/operator under our coverage which fixes its vessels exclusively on long-term charter, has seen a spike in its fixtures.


“On 11 March 2021, DSX announced the time charter contract for its 2008-built Newcastlemax at US$17,750 pd (minus commissions) for 105 days, followed by US$24,700 pd (minus commissions) after 105 days at least until 15 January 2022.


“Compare that to a 6 March 2020 fixture, where SIDERIS GS, a 2006-built Capesize was fixed at least until 15 October 2020 at US$12,700 pd (minus commissions).


“A similar trend can be seen in Panamax fixtures. On 26 February 2021, DSX fixed a 2013-built Panamax at US$16,500 pd (minus commissions), much higher than its previous charter fixture at a gross rate of US$10,800 pd (minus commissions).”

Other economic factors, ranging from the weakening US dollar to the expectation of accelerating GDP thanks to the increased tolerance for a higher inflation have played their parts in boosting the overall sentiment for the commodity markets as well.


While the demand for commodities has been on the rise, the supply of dry bulk vessels has been diminishing over the last decade. Nevertheless, the current order book paints a rather rosy picture for the dry bulk operators.


“Despite increasing evidence of an upswing in dry bulk shipping, market players are divided on the duration of this upswing, and whether it can qualify as a super cycle,” said Dafaria.


He concluded: “Some expect it to fizzle out in three-to-five months, with others expecting it to phase out in three-to-five quarters, while a percentage expects it to last for as long as until 2023. Everyone, however, holds consensus that it is a great time for dry bulk shipping and its equity shareholders.”

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