The dry bulk market has dug itself out of the hole it’s been for a large part of the past few years. In fact 2017 has started better than most ship owners would have hoped, as over the past couple of months we have seen the emergence of renewed optimism. “Renewed optimism” is but a light way of putting it, as many in the shipping industry will point out. In its latest weekly report, shipbroker Allied Shipbroking noted that “freight rates in the dry bulk market have consistently held above the comparable rates seen during the same time period both in 2016 and 2015, while at the same time we have seen the Dry Bulk Index rise to above 1,200 points and all this before even seeing the strong push from the grain season in the Atlantic.
However, according to Allied’s, George Lazaridis, Head of Market Research & Asset Valuations, “there have been some signs of late that this initial momentum may well have gone as high as it can for the time being, but being on such a remarkable trajectory, it has spurred buyers to rush into the secondhand market, turning it in effect into a seller’s market and boosting prices at an astounding rate in a matter of a couple of weeks. All this positive sentiment goes however well beyond the reach of shipping circles. Over the past seven or so months we have seen a glimmer of positive growth being brewed under the surface”.
Lazaridis added that “what’s more is that unlike other points in time since the financial crisis of 2008 where we had hopes of a recovery in sight, we have never before seen this many positive signs being seen across the rich world and emerging markets alike. Sure there are still a myriad of potential risks and pitfalls that could cause another downward spiral similar to those we have seen over the past couple of years, yet given the extent of which many of the weaknesses in most economies have already been corrected, the current growth sprouts being noted seem to be on more well-structured ground and likely to be less effected by possible shocks that may pop up in the global markets. There has been a great surge in restocking of raw materials as well as a climb in spending of both machinery and equipment, both suggesting that companies worldwide are starting to find a headwind from where they can boost their production levels”, he noted.
According to the shipbroker, “much of this may well be based on the fact that we have seen increased consumer spending in much of the rich world, while at the same time the slow indications of inflationary pressure may well be helping to move things further, allowing for a lift in manufacturing profits which in turn could lead to greater capital spending through increased earnings rather than debt and a further rival in both production and hopefully consumption at a latter stage. Furthermore, the boost being noted in commodity markets has helped beef up many of the emerging markets that heavily really on raw commodity exports, as such helping them better balance their current account sheets and push for another round of export-oriented growth.
This is all fair and well, but these are only growth sprouts for the time being and not fully developed in order to be immune to further shocks in the system. Labour markets could still improve further, with even the increase in employment in America not being followed just yet by a respective increase in wage growth which would help fuel further consumer spending and great a stronger foundation for growth. At the same time if we start to see inflation figures reach too high, growth might be stifled, as consumer spending drops. The risks are still there, however it seems as though we are on better track then we have been over the past couple of years”.
He concluded by noting that “for the moment optimism seems to be driving the market forward, however without this being properly directed towards meaningful steps to further improve markets and in turn global trade, this spark may well end up with yet another fizzle rather than a bang”, Lazaridis said.
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Source: Allied Shipbroking
