Dry Bulk Will Get Worse before it Gets Better, Says Analyst, as Low Bunker Prices Effectively Increases Vessel Supply

Allied Shipbroking asserts that balance of market fundamentals for the dry bulk sector is set to further deteriorate down the line.

Allied Shipbroking Inc (Allied) says in its latest analysis that the dry bulk market is set to get worse before it sees real improvement, adding that low bunker prices have not helped the sector's recovery.

"It seems as though trade is at a much more dire state than what had been expected," said George Lazaridis, Allied's Head of Market Research & Asset Valuations.

"During the past two months the slowdown has intensified, with the volume of cargoes in the market greatly outnumbered by the glut in tonnage supply and most market fundamentals pointing to extra deterioration in the balance down the line."

Lazaridis says that there is no guarantee where the market will head next, but adds that while the BDI has reached all-time lows, all individual sub-indices still sit above historical lows.

"With such 'sour' sentiment abound it is hard for any owner to take a strong stance when it comes to negotiating with cargo owners to push for better freight levels and while bunker prices have helped reduce voyage costs they have also in part help breakdown the 'slow steaming' policy (in effect increasing the supply of vessels further)," explained Lazardis.

Allied says that one of the major issues driving the market's current condition is the "inward focus" of many governments import and export activities, particularly with steel.

The company notes that while trade barriers are "falling left, right, and centre," oversupply paired with slowing economic growth has likewise seen the slowing of trade deals as governments look for ways to boost their own suffering industries.

Overall, Lazardis says that even if the BDI continues to see new lows into the coming year's first quarter, forecasts seem to support continued low average freight rates in 2016.

"As asset prices continue to tumble to levels never before seen, it will be the patient opportunists that will be able to squeeze the most out of this market trough once more," concluded Lazaridis.

In October, Sokje Lee, JPMorgan Chase & Co. (J.P. Morgan) executive director for Korea, says that dry bulk sector players will need to cut costs if they want to make money, as rates could stay weak for years.