Equity researcher reads tea leaves on dry bulk market with most signs pointing to ongoing strength.
Credit Suisse remains positive on the dry bulk market amid forward coverage in both physical and paper shipping markets. But the mid-size bulker segment may shine the brightest thanks to grain exports.
Capesize vessel rates have shown little bounce upwards following the end of the Chinese New Year. The Baltic Exchange assessed average capesize rates at close to $11,800 per day, essentially flat with the level seen last year.
But analyst Greg Lewis says other indicators point to a firming market. He notes that forward freight agreements (FFAs) are pricing a $16,000 per day rate come April, while the back half of 2018 shows a forward market of $21,000 per day.
Lewis also cites the increasing forward physical coverage dry bulk charterers are taking as signs of better times.
Three one-year time charters were done for capesizes at rates at or above $20,000 per day- Jera taking the Thenamaris-owned 181,068-dwt Seafighter (built 2015); SwissMarine taking Cido Shipping's 181,366-dwt Fortune Violet (built 2012) and Louis Dreyfus taking the 179329-dwt Dong A Astrea (built 2010).
Lewis says those are the best levels since the third quarter of 2014. He adds that about 30 one-year time charters have been signed in 2018, compared to 70 for all of last year and 40 in 2016.
"We are bullish on the near-term outlook for bulker rates as we expect increased seaborne iron ore volumes from Brazil given the stated production targets of 5%-6% growth," Lewis said.
But with oversupply in the Atlantic weighing down rates, Lewis says kamsarmax spot rates are currently outperforming running at around $14,000 per day thanks to grain and coal exports. He says Scorpio Bulkers should be one of the main beneficiaries of this trend.
However, once spot rates for capesizes catch up to market expectation, Lewis says names such as Diana Shipping, Star Bulk Carriers and Golden Ocean should benefit.
source: www.tradewinds.com