MSI: Earnings in Dry Bulk Market to Rebound in Q2 of 2016

As Capesize asset values hit their 16-year lows amid weak dry bulk fundamentals and partly driven by very weak sentiment over the near-term future for vessel earnings, the first quarter of 2016 is expected to be characterized by a seasonal lull keeping earnings down.

However, freight rates are expected to recover in Capesize and Supramax  sectors in the second quarter of 2016 paving the way for a rebound in earnings, according to the Maritime Strategies International’s Dry Bulk Freight Forecaster.

MSI predicts a closing of the gap between iron ore spot and future prices over the next six months, driving a period of iron ore restocking in China during Q2 which will support the Capesize market; meanwhile a strong increase in Latin American grains shipments will provide a boost for Supramax tonne-mile demand.

The November average daily spot rate for a 170,000dwt Cape was USD 5,700. According to MSI, this amount will fall further to USD 4,200 in Feb, before earnings climb to USD 9,700 by May 16.

“Whilst we are undoubtedly bearish about the state of the market, we believe that the FFA forward curve is too pessimistic for Q2 next year, primarily for Capesize and Supramax vessels. However, what improvement we see there must be set against our six-month outlook for Panamax market fundamentals which remain unquestionably weak,” Will Fray, Senior Analyst at MSI said.

This view is partly derived from expectations that new Ultramax vessels will continue to take market share from Panamax tonnage – particularly long-haul grains trade from Latin America.

In line with the forecast, Panamax vessels are expected to struggle to compete pushing freight rates to the lowest of all benchmarks in May at under USD 6,000/day.

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