The dry bulk market is expected to remain in transitionary mode for longer than initially expected, if the existing FFA rates are of any indication. In its latest weekly report, shipbroker Allied Shipbroking said that “less than one month prior to the year’s close, the dry bulk market seems far from stellar. Since early summer, there has been this sense of a temporary ceiling (or even a pressure) forming in the market. On the other hand, given the “extra” noise of late, in an already volatile market, we openly admit the difficulty of distinguishing periodical trends (either positive or negative), from actual shifts between different market regimes, even on a retrospective basis”.
According to Allied’s Quantitative Analyst, Mr. Thomas Chasapis, “in an effort to get a clearer view of where we are now, we have considered asset price levels in conjunction with FFAs on a year-to-date basis, observing an indication that we are gradually shifting towards a different phase in the shipping cycle. Recalling the sentiment and fragility of the spot market over the summer, the graph below highlights how this was reflected in the paper market where the reaction was particularly exaggerated. At the same time, strong asset prices muddied the overall outlook and prevented market participants from reading any clear indication.
Those arguments are both true, especially given that asset prices remained stable (and relatively firm), with many market participants having sustained a fairly bullish outlook at the time as well. However, we have repeatedly seen that asset prices can remain high for a prolonged period of time and with a lag to any market phase. Historical data shows that the lag period has tightened over the past few years, with parties involved adapting more rapidly to shifting market conditions. Notwithstanding this, as we have shown in previous insights, you would need a multivariate approach and a couple of technical indicators (and a dose of past experience!), in order to acknowledge any regime shifts taking place”.
Mr. Chasapis added that “that said, at around the end of the summer we should have been concerned about the market’s overall trajectory. There was a clear correction in the forward view (even if presented through a niche market), and asset price levels were starting to experience pressure. Seeing those different variables moving in tandem indicates a missed strong signal. The asset market will likely be more challenging in the near term, especially within this market status quo. If the current FFA rates are indicative of forward prospects, the market will continue in transit mode for a longer period”, Allied’s analyst concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide