Capesize bulker owners face the prospect of idling their ships due to the weak state of the freight market for large bulkers, says a top shipbroker.
“Capesize earnings have stayed depressed, falling further below operating costs of $5,000 per day for most owners,” Clarkson Platou Securities said in a note.
“We argue that rates can’t go much lower before owners start idling ships,” said managing director of equity research Frode Morkedal.
However, Fearnleys has taken a more upbeat outlook on the capesize market arguing that the sector has reached bottom and that an upturn should materialize very shortly.
“The capesize to panamax market ratio is now at 58%, which is the lowest level since early 2016,” it said in its weekly market report.
“Every time previously this ratio was at such low levels a market rebound followed,” the Norwegian shipbroker added.
Cleaves Securities head of research Joakim Hannisdahl said in a note that while the Vale dam collapse “still adds a lot of uncertainty for capes”, he believes that the downside from current levels is “limited for both earnings and share prices”.
“We still believe that the current weakness represents the intra-year low for 2019, and forecast the BDI to average around 125% higher in the second quarter of 2019,” he said.
“With capes costing around 40% less to hire and having 125% more cargo capacity, one would expect potential panama charterers to pool cargoes into capes where loading/discharge conditions allow.”
Hannisdahl added that a potential positive outcome from the US-Sino trade negotiations, now expected in mid-to-late March could also trigger a rally in dry bulk shares.
Earlier this week the market was lifted by speculation that Brazilian regulators were preparing to reinstate the Brucutu mining license.
“The rumor has not been confirmed by Vale or Brazilian regulators, however, if this turns out to be correct, it would restore the annual production of about 30mt of iron ore,” said Arctic Securities.
“This would certainly be good news for the dry bulk market, but for now it remains a rumor.”
TradeWinds reported last month that bulker operators are turning towards slow steaming amid the weak earnings environment.
Based on the Liengaard & Roschmann Dry Bulk Vesselindex, the optimal speed for capesizes was lower, at 11 knots, in the eighth week of 2019 against the last week of 2018.