Get ready for a seasonal lull in bulker markets but the effect on share prices will only be temporary, according to Cleaves Securities, which expects a comeback in the sector this year.
In fact, 2021 could be the year that many public bulker owners finally close the gap between their share price and net asset value (NAV), which could lead to more vessel-acquisition deals, according to the Oslo-based investment bank.
"We believe the current lull in seasonal headwinds will abate, and see near-term downside to spot rates," Joakim Hannisdahl, Cleaves' head of research, said in a report on Friday.
A seasonal fall in dry bulk imports to China and bulker freight rates is usually seen ahead of the Chinese New Year holiday, which this year falls on 12 February.
Friday's spot market for capesize bulkers saw time-charter average rates assessed at $23,989 per day, down by 2.1% compared to Monday's level following a correction to the past week's bull market.
Panamax spot rates have come off slightly after enjoying a rising market for much of January. Meanwhile, supramaxes freight rates have grown by close to 5% since Monday.
Finally above NAV
"A recent influx of capital into dry bulk shipping has elevated the most liquid names far above NAV [net asset value]," Hannisdahl wrote in Friday's report.
"Still believers of NAV, we predict that cash-flow generation and rising asset prices will soon close the gap to current share prices."
Hannisdahl added that with so many companies' stocks trading at a premium to NAV currently, "we wouldn’t be surprised to see NAV-accretive ships-for-shares deals emerging".
Cleaves has rated dry bulk stocks in general as a 'Buy' and its top picks are bulk carrier owners Genco Shipping, Golden Ocean Group and 2020 Bulkers.
Cleaves estimates that Genco's stock has an 84% potential upside from its current share price of $8.20 on the New York Stock Exchange.
Golden Ocean, which is dual-listed on the Nasdaq bourse and in Oslo, has the potential to rise 73% from its current share price of around $5.20 in New York, by Cleaves' estimates.
Positive outlook for dry bulk
Hannisdahl added that his firm has a positive outlook for dry bulk shipping, on the back of the lowest orderbook to fleet ratio in its records, which go back to the 1990s.
"With very limited demand growth needed to outpace supply growth, an expected post-Covid resurgence in coal and minor bulks during 2021E [estimated] and a normalisation of Brazilian iron-ore exports during 2022E is more than enough to potentially catapult earnings, asset and share prices to decade-highs," he added.
Cleaves' dry bulk share index, which comprises publically listed bulker owners, has advanced by 59% since early November.
Hannisdahl said the index could potentially rise by 129% over the next two years.
During 2020, the index averaged 95 points, which is down by 26% compared with the previous year.
The index remained depressed despite an uptick in asset prices in the middle of the year, due to the Covid-19 pandemic's impact on sentiment, the report noted.
Cleaves expects the index to average 110 points during the first quarter of 2021.
The firm also forecasts its dry-bulk asset price index to advance by 65% by the end of 2023.
