Analysts believe a pull-back in dry cargo stocks as rates soften represent a buying opportunity rather than an alarm bell for investors.

Bulker stocks have come off the boil in the past month as the spot market weakened amid reduced demand and seasonal changes.

Morgan Stanley and Deutsche Bank peg the decline in the dry cargo peer group at between 25% and 20% during the past month.

Morgan Stanley analyst Fotis Giannakoulis says the pull-back is "overdone" and provides an attractive entry point.

Amit Mehrotra of Deutsche Bank argues the stocks have hit some speed bumps and believes the market is in the “early innings of an asset and rate reflation cycle".

He specifically identified Star Bulk and Scorpio Bulkers as “compelling” opportunities.

“Our confidence does not come from our outlook on near-term movements in spot rates,” he said.

“Rather we view shipping equities are most leveraged to near-term movements in asset values, which we expect to continue to move up.

“Longer term we believe dry bulk rates should trend up, reflecting significant reductions in new orders (which impacts gross supply growth), and regulations that should drive accelerated scrapping.”

Like the stocks, capesize rates are down by one quarter since early April, with panamax spot earnings falling by 28%, Giannakoulis says.

He pointed to seasonally high Chinese iron ore inventories and dropping steel prices as catalysts for the weaker freight market, with speculative trading blamed for a decline in iron ore prices.

Giannakoulis said he remains constructive on the sector and expect a strong rebound in dry bulk rates in the second half of 2017.

Frode Morkedal and Herman Hildan of Clarksons Platou Securities say the previous unabated dry bulk optimism has been replaced with more uncertainty.

“Unless steel prices weaken further, we are not worried that this reflects a fundamental change in the dry bulk market outlook,” they said in a report last week.

“Spot volatility should be expected as the fleet utilization improves. Current rates are line with our full year forecasts and we therefore see no need at this time to change estimates.

"In a historical context, dry bulk remains highly attractively valued.”