Capesize owners are caught in the eye of a storm and facing a difficult year due to demand headwinds, Allied Shipping Research says.
After a sharp drop in earnings during the first quarter, however, analysts suggest the picture can only improve from a shipowner's perspective.
A dam disaster in Brazil and a slowdown in China have helped drag down freight rates, with the Baltic Dry Index hitting the lowest level in well over two years during the Lunar New Year holiday.
George Lazaridis, head of research and valuations at Allied, said the crash has brought back memories of the 2016 trough, when bulker rates hit their lowest level on record.
However, he says there are many differences between this downturn and the last.
“The market collapse noted since the start of 2019 has been a demand side issue in the making for some time now and in part was hastily brought into the fore front by the slack created by the Chinese New Year festivities coupled by a bad coincidence of unfortunate events coinciding,” he wrote in a report.
Despite the short-term dynamics, he said the market was facing fundamental issues which are far from being resolved.
“The freight market may well have shown signs of a slow recovery, though this has mainly been driven by the smaller size segments,” Lazaridis said.
“The capesize market seems to still be caught in the ‘eye of the storm’.”
No easy ride
The Baltic Dry Index slipped below 600 points last week but had picked up to 635 points on Tuesday.
Capesize rates sat at just $6,646 per day on average today, according to the Baltic.
Lazaridis says the market has yet to find a stable footing since the Vale dam disaster, which has been followed by iron ore prices spiking to the highest level in almost half a decade.
“What is certain is that 2019 will not be an easy ride for the capesize market, given all these ongoing demand-side problems coinciding with a considerably higher orderbook delivery schedule for the year compared to 2018,” he concluded.
Joakim Hannisdahl, head of research at Cleaves Securities, believes the weakness around the Chinese New Year holiday will mark the low point for bulker rates this year.
"The Vale dam collapse still adds some uncertainty for capes, but the downside from current levels is limited for both earnings are share prices," he said in a report today.
