Dry Bulk Market Could end 2020 on a High, but the Start of 2021 Should be Challenging. Known assumptions could be a wrong guide when it comes to assessing the dry bulk market’s direction during the final quarter of the year. In its latest weekly report, shipbroker Allied Shipbroking said that as we enter the fourth quarter of the year, “many are now debating to what extent we can really expect a firm dry bulk market to take shape in the final few months of 2020. Amidst a tail risk regime, it would be rather risky to rest in “known” assumptions and past experiences, trying to choose the best “strategy”, even in the case of a short-term outlook.
Given that it is a macroeconomic problem, how can global markets respond to “closed” economies, disruptions, and strict restrictions? We have known unknowns, but also, unknown unknowns. The freight market was one of those markets hardest hit by the onset of the pandemic.
According to Mr. Thomas Chasapis Research Analyst with Allied Shipbroking, “this year has its unique characteristics, being in the midst of a transition over to a different and new era, in terms of how we conduct business, or even how we value risk. Still, though, it is too early to say if these trends of late are really here to stay. For the time being and with some sort of certainty, we can say that this shocking event will leave its mark. Based on this, can we expect global markets to react differently compared to what we have seen up to now in the event of any further escalations being noted to the current Covid-19 pandemic? In March, the hit was immediate and strong, despite the false (at the time) impression, that it was a shock of short-term magnitude. Given that it is a macroeconomic problem, how can global markets respond to “closed” economies, disruptions, and strict restrictions? We have known unknowns, but also, unknown unknowns. The freight market was one of those markets hardest hit by the onset of the pandemic. There was a clumsy negative dive in realized returns, that many instantly compared it to the market of 2016. However, year-to-date average earnings have outperformed those of 2016. This, on the other hand, doesn’t overturn the tremendous step back being noted, both in terms of sentiment and actual earnings. This situation rather supports the argument that chasing periodical opportunities and minimizing risks, as key aspects for a successful business model under the current market regime”, Chasapis said.
He added that “a strong example is a Capesize market, that may well finish the 3rd quarter above the US$ 20,000/day mark (a relatively strong figure for the time period) that suggests that ample fundamentals still exist to support such periodical “rebounds”. The forward sentiment, measured by current levels in the paper market, is also in favor of a relatively “good” freight market for the remaining part of the year. Closing numbers for contracts with expiration dates within this year have noticed a fair boost for most of the size segments during the past month. However, a sharp correction is being noted for contracts involving the 1st quarter of 2021. Whether this view is based solely on typical seasonality pressures, or a hypothetical peak of another wave of market disruptions as part of the pandemic, is still unknown”.
“If we were to experience a strong escalation in the pandemic, it is unlikely that this will only affect the start of the new year and have no significant negative effect on rates for the final part of this year. In other words, the timing of relevant positions in the market can prove essential and challenging, given the market’s vulnerability, volatility, and fragile states. As a closing thought, all this could have a deeper impact on the Sale and Purchase. With a fair bit of bullish sentiment now possibly on the crisp of spilling over into the SNP market, we could potentially see a fairly “robust” picture portrayed both in terms of activity and asset prices during the final months of 2020. For the time being, overall year-to-date activity seems to be lagging behind compared with what was seen during the last couple of years. Given the good momentum noted since the start of the summer, we could see a vivid sales market add optimism and subdue any excessive dissonance from other volatile sub-markets”, Chasapis concluded.