EUR 1140.00 For Business Accounts Only

Dry bulk shipping - Turning Neutral as normalisation takes hold

​We at DMER believe the long-awaited normalisation process has already begun; even as we highlight that recovery will be slow, the time to be permanently bearish on the sector has passed. On the demand side, Chinese hard landing and steel capacity rationalisation have been pushed further out. The Chinese stimulus in 1Q16 was unexpected, but the key near-term takeaway is that the policy makers seem to have abandoned the transition in the medium term and are back to supporting the economy by tried and tested multiplier effects of Real Estate/Property/Infrastructure spending. On the supply side, we find huge positives in the much-awaited fleet rationalisation with negative fleet likely on the horizon growth after years of excessive supply. Key to our optimism is continued supply-side rationalisation, and we cannot highlight enough how critical it is for sustained recovery.

With the market in a bottoming out process, we place our bets on the dry bulk names with high operating leverage and considerable exposure to the spot market. We expect the uptrend in freight rates to mirror in asset prices, that in turn, will have an amplified effect on stock prices. Hence, from a short to medium term perspective, we favour companies such as Scorpio Bulkers, Golden Ocean over the conventional bets such as Diana Shipping.