Stifel is giving a bullish outlook on dry bulk shipping over the next two years despite a 50% fall in capesize spot rates over the past two weeks.
The capesize 5TC, a weighted average of spot rates on five key routes, dropped to $12,772 per day on Thursday from $25,557 per day on 20 January as a result of seasonality and oversupply in the Atlantic basin.
The US investment bank still maintains long-term optimism despite the drop in capesize rates, which often drive results for the Baltic Dry Index, and expects "long-run" rates to hit $26,150 per day.
"Brazil iron-ore production is returning and demand, particularly in China, has more than fully recovered," analyst Ben Nolan wrote in a two-year outlook.
"Strong demand for other dry bulk commodities such as steel, nickel, aluminium, fertiliser, etc, is helping offset 2020 declines."
Future demand growth
Stifel expects global coal demand to grow 4% this year as overall commodity demand grows 3.8% to 5.31m tonnes while supply increases by 2.8%, or 25 more ships.
It gave a similar but less disparate forecast for 2022, predicting demand to expand by 1.7% to 5.41m tonnes and supply to grow 1.6%, or 15 vessels.
"We expect all equities in the dry bulk peer group should trade up substantially with improvements in underlying fundamentals, rates, and cash flows," Nolan wrote.
"Relative to equities of their customers ... dry bulk shipping companies have underperformed, but as those companies are increasingly active they will need more ships."
Improved ratings
Stifel is so confident in its positive outlook that it has improved ratings for Diana Shipping and Safe Bulkers to "buy".
He said Diana Shipping shares have room to grow at only 63% of net asset value but face challenges related to liquidity and market capitalisation restraints.
He said Safe Bulkers shares are very sensitive to rate fluctuations due to a high inventory of preferred equity and should increase in value alongside improving rates.
Diana Shipping's stock, which trades on the New York Stock Exchange under the ticker symbol DSX, lost $0.14 to $2.60 by early afternoon on Thursday.
Safe Bulkers' shares, which trade on the same exchange as SB, slipped $0.01 to $2.09.
