China’s recent signals of loosening the collar of strict Covid-19 protections that have helped choke its economy are about to spell good news for the dry bulk sector, just not immediately. Analysts at Deutsche Bank see dry bulk names remaining under pressure through year’s end and then the seasonally weak first quarter before the market starts to rebound in the second quarter of 2023. The bank is using its projection to tout the shares of major Greek shipping company Star Bulk Carriers. But the potential benefit is clearly broader: Star Bulk is the only dry shipowner that Deutsche Bank currently covers after dropping most of the sector on issues of size and market capitalization years ago.

Star does have a large complement of 24 capesize bulkers that are especially attuned to iron ore imports, but any reawakening of the Asian market giant should trickle down to smaller vessel categories as well. Deutsche Bank shipping analyst Amit Mehrotra and Chris Robertson penned their take on shipping implications after the bank’s China macroeconomic team took a deep dive into the 20 measures announced by China earlier this month to relax Covid-19 restrictions. “While not a complete 180-degree pivot from its prevailing policies geared towards prevention and containment, this is an important policy tone shift that we believe will lead towards further reopening and fewer major lockdowns. Stronger Chinese economic activity in 2023 will be a key driver for dry bulk commodity import demand,” the analysts wrote.

One key point for the analysts is that local Chinese officials who implement overly restrictive practices such as lockdowns and factory closures will face “corrective measures”, they noted. “This seems a major tone shift towards prioritizing fewer lockdowns and more economic activity,” they said. Also of note is the prioritization of vaccines and treatment drugs, moving away from a strict policy of containment, they wrote. Still, little is expected to happen immediately. Even as China unveiled the plan, Covid cases were surging, topping the 10,000 mark for the first time since May as the colder winter months begin to take grip.

“We don’t believe further easing will occur until 2Q23,” Deutsche Bank projected. “Coupled with normal seasonality around Lunar New Year, dry bulk rates will likely remain under pressure during [the first quarter of 2023]. The pace of China’s ultimate reopening and economic stabilization will be a key factor in improving dry bulk commodity and tonne-mile demand for vessels.” The bank is thus recommending investors take advantage in the pullback in shares of Star Bulk, which is the largest publicly listed dry bulk fleet at 128 units.

Deutsche Bank has one of its top “buy” ratings across all industrial sectors on the Petros Pappas-led shipowner, citing a $40 price target for a stock that was trading around $21 on Monday. Star has traded as high as $33.99 in the past year. “We believe dry bulk carrier rates and asset values will trend higher over the next twelve months,” Mehrotra and Robertson wrote.

The dry trade may reap an additional benefit as Bloomberg reported on Friday that China is planning a broad rescue package to bail out a real estate market mired in a deep slump and deepening liquidity crunch, citing sources familiar with the matter.