Drybulk Shipping Market: A Dead Cat Bounce Or…?

By Barry Parker (gCaptain) –

Shipping markets are always full of surprises. Containers have eased, tankers have boomed, and drybulk continues to be volatile. This latter sector, encompassing iron ore, coal, grains, minerals and many other “minor bulks”, had a tremendous rally nearly a year ago, with the Baltic Dry Index, or BDI, rising to “5500” points. 

Drybulk’s outlook  then faded in late 2021 and into early 2022 (with the BDI sliding down to “1400” in late January), only to rebound up to near 3400 in late May. Then, as the analysts were cranking up their “buy” recommendations, the dog days of summer, with their negative sentiments, began in earnest- with the BDI sliding downward to  below “1000” by end August. And now, with summer holidays over, a bit of recovery is underway- with the BDI now up above “1400”. 

For those with a historical bent, the BDI’s highest levels, nearly “12,000” (when Capesize vessels were getting $200,000/day) came in late 2007/early 2008 before crashing. More recent lows (corresponding to negative hires on some routes), came in early 2020 at just under “500”. 

This time around, as the index moves up through the 1400’s, there is optimism from various analysts and commentators. Analysts at Novisea, a shipping advisor writing on behalf of Breakwave Advisors, which has packaged the Breakwave Dry Bulk Shipping ETF, or BDRY, capturing the movements of futures contracts on the drybulk market, have noted strength in the larger size bulk carriers, but implores traders to be cautious.

They write: “The Capesize futures market point to an anticipated recovery for the rest to the month, which, combined with seasonally favorable dynamics, could potentially build into something bigger as the month progresses and we enter the fourth quarter of the year. Yet, nothing is a given, as the supply/demand balance remains weak, and some additional work needs to be done in terms of trade volumes for the market to turn favorable.”

Breakwave’s report points to a turn towards positive sentiment regarding China, which would drive the aforementioned trade volumes. They say: “Headlines out of China point to a more positive outlook, as government pushes harder for stimulus – China’s zero tolerance towards Covid outbreaks remains a major hurtle for the resumption of economic activity towards normal levels, and so far, there is no indication of an imminent change in such a strict policy. However, there has been some encouraging signs of stimulative measures and actual implementation of additional liquidity in recent weeks.”

Another well-informed commentator and analyst well known in social media circles, Edward Finley-Richardson, with an audience of investors in shipping, shares in Splash24/7: “The past three months have been a humbling experience for many shipping investors. Just as dry bulk stocks seemed invincible, daily freight rates halved in a matter of months. Many of the most vocal bulls among analysts, shipping executives, and shipping investors failed to foresee the dip at all. Typically, those least experienced have been left holding the bag, with stocks 30-50% lower.”

On the dry markets, he says: “What is especially intriguing about the current dry bulk set-up is that freight rates – in particular capesize – seem like they could be close to bottoming. They certainly can’t get much lower, as they are already unprofitable for most owners.” He then points to a rise in the BDRY price, which has now turned upward after a sharp plunge reflecting 2022’s negative sentiments that began in May.

In a recently released video, investment advisor J. Mintzmyer, who directs Value Investors Edge (through the Seeking Alpha platform) says that drybulk is presently undergoing a challenging transition (with concerns about China, but he also spoke about Ukraine-related trade disruptions, notably in grains), but with a long-term upside. Mintzmyer, who has had considerable success in picking “winners” among shipping equities, points to Genco Shipping (NYSE: “GNK”) as his top drybulk pick. He cites its low leverage and strong corporate governance.

Responding to a question about the still negative sentiments still pervading drybulk, he said: “If you get into the right stocks…and have patience…you will do very well.” 

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