The dry bulk market has failed to impress over the past few weeks, with the gloom now starting to translate to asset values as well. In its latest weekly report, shipbroker Allied Shipbroking said that “it is a fact that conditions in the dry bulk market have been anything but stellar for some time now, with the overall market’s trajectory and sentiment being under considerable pressure. A prolonged state of clouded global macros, surging inflation rates as well as geopolitical shifts, have all contributed to triggering a series of new challenges in terms of market stability even on a short-term basis”.
“We have once again looked to tackle this analysis of the market’s trend through the use of technical analysis, and specifically from the perspective of the TRIX indicator. For those not familiar with this metric, the TRIX shows the rate of change within a 15- period moving average that has been smoothed exponentially 3 times and is typically used both as an oscillator, for those seeking to see any potential “overbought” and “oversold” conditions, as well as a momentum indicator through its movements around the zero line. For our purposes, we calculated the TRIX values for both 1-year period freight rates and 5-year asset price levels across all the main dry bulk submarkets. At the same time though, we separated the sector into two main categories based on vessel sizes. The bigger sizes covering the Capesize and Panamax size segments, and the smaller sizes covering the Supramax and Handysize segments. Finally, we extended the analysis over a 22-year period (since 2009) to capture broader variations across different market states”, said Allied’s Quantitative Analyst, Mr. Thomas Chasapis.
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He added that “according to the graph above, the derived TRIX for 5-year asset price levels for both categories is already at the zero-line crossover, signaling that the market has firmly entered a bearish direction, and an exit strategy could be the safer road to take. However, the main source of concern is not the recent decreasing trend in prices. It is the potential duration of this, given that assets are already facing some sort of impairment, while opportunity cost (as reflected through “risk-free” interest rates) has been “spiking” for many months now. Capex, as well as cash flow management, have both pivoted over to harsher levels, while earnings are significantly lower when compared with the year prior. So, what could trigger an upward mobility in assets, on a riskadjusted basis? Moreover, the TRIX lines of the period charter market give a clearer view of this. We currently stand at the lowest levels (in terms of typical seasonal patterns) since around Nov ’14. What does this tell us? The shifts across the different market regimes have become more abstract (when compared to traditional measures), while smaller market cycles within shipping have further decreased in duration”.
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