Container shipping dominates the headlines, but in its shadow, dry bulk shipping is posting its best first half in a decade. Dry bulk, which is notorious for abruptly losing momentum, is still going strong.

“This year’s remarkable rally is yet to run out of steam,” said Maritime Strategies International in its latest outlook.

“The dry cargo market has taken many by surprise. The rally continues,” said Nick Ristic, lead dry cargo analyst at Braemar ACM Shipbroking.

Rates for Capesize ships (bulkers with capacity of around 180,000 deadweight tons or DWT) rose to $33,300 per day on Monday, according to Clarksons Platou Securities. Panamaxes (65,000-90,000 DWT) were earning $32,800 per day and Supramaxes (45,000-60,000 DWT) $31,600 per day.

It is extremely rare for all three size categories to simultaneously top $30,000, as they have for the past two weeks. Panamax and Supramax rates are now at fresh highs for the year. Panamax rates are more than double their five-year average and Supramax rates are more than triple theirs.

(Charts: Clarksons Platou Securities; source: Clarkson Research Services, Clarksons Platou Securities)

Positive signals

Forward freight agreement (FFA) pricing, time-charter rates and ship valuations all point to continued strength.

FFAs traded down on Monday but remain above current spot rates for the coming quarter. According to brokerage BRS, the Capesize Q3 contract closed at $39,958 per day and the Q4 at $36,257, the Panamax Q3 at $35,800 and Q4 at $30,004, and the Supramax Q3 at $34,928 and Q4 at $29,692.

On the time-charter front, Clarksons reported that “activity remains robust, with several fixtures in the 6- to 12-month range across the various asset classes reported recently. Currently, 12-month charters are quoted at above $30,000 per day for Capes, $27,000 per day for Panamaxes and $24,000 per day for Supramaxes.

“Several Capes hovering around the 15-year-age range have been fixed on 12-month charters at above $30,000 per day recently,” said Clarksons. “This equates to an EBITDA [earnings before interest, tax, depreciation and amortization] of $9 million as compared to valuation quotes of $20.5 million for such vessels — and scrap value close to $12 million — indicating much more upside remains in secondhand values.”

Secondhand ship prices have already risen sharply. According to Braemar ACM, the price of a 5-year-old Capesize has increased 25% since December, with the price of a 10-year Cape jumping 50%. The price of a 5-year-old Supramax has risen 23%, a 10-year-old Supramax 42%.

During the Marine Money Week virtual conference last week, Aristides Pittas, CEO of EuroDry (NASDAQ: EDRY), opined, “Dry bulk [ship] prices have increased quite a lot, but they still have significant room to move upwards if the market follows anything like what we saw during the last good cycle in 2005-2007.” He predicted that ship values will rise further 20%-25% by year-end.

Martyn Wade, CEO of Grindrod Shipping (NASDAQ: GRIN), was even more bullish. He maintained that bulker values still have an additional 50%-75% to run. “With the cash being generated, five-year values are just too cheap at the moment,” Wade asserted.

Triple-digit gains for stocks

Dry bulk equities are largely a play on rebounding industrial production, infrastructure construction and the strength of the Chinese economy. U.S.-listed dry bulk stocks began their ascent in November. Even after a pullback on Monday, dry bulk stocks were up triple digits over the past eight months.

Between Nov. 2 and Monday, the stock price of EuroDry rose 614%, Safe Bulkers (NYSE: SB) 364%, Star Bulk (NYSE: SBLK) 282%, Eagle Bulk (NASDAQ: EGLE) 248%, Golden Ocean (NASDAQ: GOGL) 211%, Grindrod 190% and Genco Shipping & Trading (NYSE: GNK) 180%.

(Chart: Koyfin)

The Breakwave Dry Bulk Shipping ETF (NYSE: BDRY) — an exchange-traded fund launched in March 2018 that buys FFAs — is up 344% since November. Volumes have surged over the past three months. The ETF closed at the highest level in its history on Friday.

How long can rally last?

Pittas believes there will be “exceptionally strong demand” for iron ore and coal, together with “very promising demand” for grains and other minor dry bulks. “We have the possibility of two or three good years in dry bulk ahead of us,” he argued.

Jefferies analyst Randy Giveans highlighted the all-time-low newbuilding orderbook, at just 5.8% of on-the-water tonnage. “We believe a perfect storm of underlying supply and demand fundamentals is shaping up in the dry bulk segment, which could boost charter rates and asset values in the coming years,” Giveans said in a client note.

Ristic of Braemar ACM is more conservative. He told American Shipper that he expects dry bulk markets to be “running very hot” this year, although he noted that “the strength seems to be coming from the smaller ships” as opposed to Capesizes.

“Trade on Handies [Handymaxes, 35,000-60,000 DWT] and Supras [Supramaxes] has been extremely good, but for Capes, it has been fairly average. There are a lot of inefficiencies and regional imbalances as a result of COVID that are keeping these markets tight, so with that in mind, we expect things to cool as we get toward the end of this year and into early 2022.

“We don’t think that rates will fall off a cliff, but given the underlying fundamentals, it doesn’t seem like these levels can be sustained longer than that,” said Ristic.

Click for more articles by Greg Miller 

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