Connecticut-based Eagle Bulk Shipping is seeing its best time charter equivalent (TCE) rates in more than nine years with nearly all of its operating days booked in the current quarter. Eagle’s bullish start to 2021 comes after the owner reported a surprise profit of $0.01 per share for the fourth quarter of 2020 against consensus analyst expectations of a $0.17 loss. But even that earnings beat will take a back seat to what the Gary Vogel-led owner of supramax and ultramax bulkers is saying about its surprisingly strong first quarter, which is usually a period of weakness for dry bulk owners.

“We entered the first quarter…well positioned to take advantage of the rising market with the majority of our vessels operating in the Atlantic Basin,” Vogel said in Eagle’s earnings release. “As of today, we have fixed about 93% of our available days for the quarter at a net TCE of $15,085 per day, representing what will likely be the highest TCE the company has achieved in more than nine years.” Vogel credited the strong performance to the world’s recovery from Covid-19 and government stimulus packages, both stoking demand for dry commodities. “The freight market has been reflecting this trend, and the Baltic Supramax Index is currently trading at a 10-year high. While risks remain to the global recovery, we believe the positive growth trend will continue,” Vogel said.

He also cited an historically low orderbook that could underpin both rates and asset values. Dry bulk owners generally have experienced unusual strength in the first quarter, which is typically dampened by shutdowns connected to the new year in China. Travel restrictions related to Covid-19 have helped limit the disruption usually associated with the holiday period. Still, Eagle’s rates update will be viewed as particularly strong among peers, on top of a surprisingly positive close to 2020. Eagle’s fourth quarter result did include an $800,000 gain on derivative instruments, according to Jefferies equity analyst Randy Giveans. Without that, Eagle ran to a $0.07 loss, but even this is significantly stronger than the $0.26 loss expected by equity analysts.

Eagle is also coming off an active quarter in which it purchased seven secondhand vessels, bringing its fleet to 52. The purchases were previously reported by TradeWinds. They included three 2011-built supramaxes from Alterna Capital and four Scorpio Bulkers ultramaxes. For the first time in its history, Eagle was able to use its shares as partial payment for acquisitions, for all three of the Alterna vessels and one of the Scorpio units. Scorpio Bulkers has since been renamed Eneti. Eagle also sold four older vessels over the period, all built between 2001 and 2003.

Eagle’s net income for the fourth quarter, without adjusting for the derivatives gain, was $100,000, or $0.01 per share, against a loss of $11.2m, or $1.09 per share, in the corresponding period of 2019. Revenue increased to $75.2m from $71.5m, which Eagle attributed to more operating days resulting from the retrofitting of vessels with exhaust-gas scrubbers in the earlier period. Eagle could not avoid a loss of $35.1m, or $3.40 per share, for the full Covid-impacted year, worse than the $21.7m loss, or $2.13 per share, for 2019. Eagle’s shares closed up more than 1% to $31.20 in Thursday’s trading.

Genco, a US-listed bulker owner, is positive on freight rates for both this and next year. “A perfect rainbow is forming over dry bulk market with a healthy multi-year outlook,” chief executive John Wobensmith said in an interview. The company has 41 vessels in its fleet, consisting of 17 capesizes, all scrubber-fitted, nine ultramaxes and 15 supramaxes. It has recently exited the handysize space.

Current capesize rates, which trail the other segments, are a function of a normal seasonal lull, although are still higher now than at the same time in previous years. The market was hit by supply issues rather than any demand concerns. Mr Wobensmith expects the rates to rebound by the end of March or early April, given that the rainy season in Brazil is coming to an end as well as scheduled maintenance, which will lead to higher iron ore volumes from the country’s biggest miner Vale. Moreover, iron ore prices at $170 per tonne gives incentive for miners to shift product, he said, adding that as China’s steel production continues to see growth, inventories of steel and iron ore are being drawn down, which signals “demand is there”.

The World Steel Association estimates that China produced 90.2m tonnes of steel in January, an increase of 6.8% from the same month a year earlier. Global output recovered, rising by 4.8% to 162.9m tonnes. The smaller dry bulk segments have been led by a strong Atlantic market mostly driven by grains from the US and soon Brazil, which is expected to have a record crop, Mr Wobensmith said, adding that abundant shipments of petroleum coke, fertiliser and cement cargoes on backhaul have added to the strength. Genco booked an ultramax for a cement shipment at $19,000 per day.

In the Pacific, coal movements into India from Australia, and China’s imports from South Africa and Indonesia have been driving rates higher, he said. Vietnam is also pulling in thermal coal, and will be growing coking coal imports because of rising steel production. The company has been trading vessels in the spot market to capture the upside. While the prospects for this year look good, Mr Wobensmith is “more excited” about 2022 as vessel supply tails off even further. The company has been active in the sales and purchase market over the past few months and any acquisitions will concentrate on builds completed after 2015 as that is when “eco” engines came into play, he said. “There is still time to invest as asset prices have risen a little, but have not run away, as we are at the upper part of the lower quartile. With the cash and leverage position we have, we are always looking at opportunities but nothing concrete as yet.”

As with many other executives, Mr Wobensmith does not expect large ordering of newbuildings to take place until there is a clear picture about future fuels. “The good news is that there are lots of options (to decarbonise shipping),” he said, adding that while liquefied natural gas was a short-term fix, it was better to spend more time on long-term solutions. He said Genco is looking closely at ammonia, which seems to be leading the pack for larger ships, although the engines are unlikely to be developed until 2024 at the earliest, while the infrastructure will also take a few years. Meanwhile, hydrogen on smaller ships may work. The company has an environmental, social and governance strategy. It sold off older, inefficient vessels, which helped to lower its carbon footprint by 10% since 2018, and will reduce it further in the coming year, with the addition of modern ultramaxes, according to the executive. It is a US filer, with an independent and diverse board, and no related party transactions, he said.

On the social side, the company contributes to the Seamen’s Church, organises beach clean-ups, though not since the coronavirus pandemic, and supports local charities within New York city, where it is based. It recently joined the Neptune Declaration on Seafarer Wellbeing to help address the humanitarian crisis at sea because of the pandemic. It has completed more than 100 crew changes involving about 2,000 seafarers. Despite major shareholders such as Centerbridge, Apollo and Strategic Value Partners reducing their collective stakes in recent weeks from 58% to 32%, potentially linked to end of life investment cycles as two of them entered in 2013, the sell-off may have improved liquidity in the stock. Cleaves Securities ranks Genco as its top pick in the dry bulk sector. It has a “buy” rating on the stock and sees a 53% upside to its target price of $16 per share.

Where to put your money on a 2021 shipping bet? A panel of equity analysts at Wednesday’s Capital Link International Shipping Forum had a clear preference for the dry bulk trade, but only to a point. After that, tankers look stronger on continued inventory destocking and the return of global travel as nations reopen and recover from the Covid-19 pandemic, at least in the view of some pundits. And then there’s a wild card: if a shipowner has scrubbers on its vessels, it might be worth backing regardless of the operating sector.

The five analysts under questioning from Capital Link founder Nicolas Bornozis were generally together, though, on an overall positive view of shipping prospects for 2021 and beyond. “In deep value, I like dry bulk,” said J Mintzmyer, lead researcher for Value Investor’s Edge and also an investor in shipping stocks. “Not all the stocks are up to NAV yet. I like dry as a trade in 2021 but I don’t like it long term. Longer term, I’m more apt to pick containerships.”

Mintzmyer drew agreement from both Greg Lewis of Credit Suisse and Randy Giveans of Jefferies, at least on the short-term dry play. “I’m bullish on dry bulk,” Lewis said. “Coming out of Chinese New Year, cape rates are moving higher…it’s what I’d want to own now.” Giveans added his support for bulkers and boxships in the short term. “But give me more than six months and I like refined product tankers and even crude tankers. With travel and jet fuel demand moving higher, give me nine months and I like tankers,” he said.

Ben Nolan of Stifel piled on the bulkers bandwagon, but begged off on containerships, saying he worried about a fall from current highs. “If we go lower, we’re going to lose momentum,” he said. Omar Nokta of Clarksons completed the dry enthusiasm, but not at the exclusion of tankers, saying he sees a quicker recovery than Giveans projects. “I’m very excited, but not necessarily over six-to-nine months – it may happen sooner than that,” Nokta said. He noted that an Opec meeting on Thursday is likely to bring good news in the form or production increases. “It’s not what they decide to boost production by, it’s that every meeting is now about what they’re bringing on, not reducing,” Nokta said.

Increasing oil prices also mean wider spreads between prices of high-sulphur and low-sulphur bunkers, something seized upon by Lewis in his remarks about users of exhaust-gas scrubbers. They allow owners to continue using dirtier but lower-priced fuel. “Think about looking at companies that own scrubbers,” Lewis said. “Scrubbers are making money now, and we expect that price spread to widen. We think companies that have scrubber exposure should outperform over the next six to 18 months.”

With the stock-pickers finding more good than bad in their forecasts, Nolan confessed that it was a somewhat unsettling feeling. He noted the absence from the panel of Evercore ISI analyst Jonthan Chappell, who has often struck a bearish tone over the years. “With Jon not here, I’m probably the most curmudgeonly of the group, but I feel pretty good about things,” Nolan said. “I don’t known whether that’s a good thing or a bad thing. Maybe we need Jon to bring things down a little bit.”

It has been a particularly strange Q1 for dry bulk shipping. Usually, the larger ships — Capesizes with capacities of around 180,000 deadweight tons (DWT) that carry iron ore and coal — do poorly all quarter. This year, they did better in January than they had in a decade before succumbing to their usual slump.

Then came another oddity: The smaller bulkers began earning much more money than the Capesizes. As of Tuesday, Handysize bulkers (up to 45,000 DWT) were earning $19,400 per day, according to Clarksons Platou Securities. That’s almost double the $11,700-per-day rate of Capesizes — even though Capesizes carry five times the cargo. Supramaxes (45,000-65,000 DWT) and Panamaxes (65,000-90,000 DWT) are also trumping Capes, at $20,700 and $18,800 per day, respectively.

This curious market inversion recently led to a Capesize being booked for a grain cargo, something “that rarely happens, if ever,” noted Breakwave Advisors.

The bullish view on all of this strangeness is that Capesizes did so well early in the quarter because the supply-demand balance is tight. They’ll rev back up again soon when seasonal headwinds wane. As for smaller bulkers, they’re a bellwether of global GDP — the shipping version of “Doctor Copper.” High rates signal a global economic resurgence, say optimists. At least some investors agree. Dry bulk stocks have been on a roll in early 2021.

On Tuesday, the Breakwave Dry Bulk Shipping ETF (NYSE: BDRY) jumped 14%. It is up 93% year-to-date. The stock of Safe Bulkers (NYSE: SB) is up 120% year to date. Grindrod Shipping (NASDAQ: GRIN) is up 63%, Eagle Bulk (NASDAQ: EGLE) 59%, Star Bulk (NASDAQ: SBLK) 55%, Genco Shipping & Trading (NYSE: GNK) 45%, and Golden Ocean (NASDAQ: GOGL) 30%.

“The Handys, which have been unloved for so long, are finally having their day in the sun,” affirmed Martyn Wade, CEO of Grindrod Shipping, which owns a fleet of Handysizes and Supramaxes. Wade was speaking at the Annual Capital Link Shipping Forum on Tuesday. “The last time January finished stronger than December was actually in 2008,” Wade added. “You have to go back to the good old days of the last big market. We were looking at some of the voyage rates today and they are within a few bucks of their all-time highs.”

Sub-Capesize vessels carry grains and so-called “minor bulks” (bulk cargoes excluding iron ore, coal and grains). John Wobensmith, CEO of Genco Shipping & Trading, which owns a fleet of Capesizes and Supramaxes, asked the Capital Link forum, “When was the last time we’ve seen both a strong Atlantic Basin but also a strong Pacific Basin? That is what’s really driving the minor-bulk market.” Wobensmith continued, “It’s a lot of fun to talk about all the grain. And don’t get me wrong: That’s definitely driving a lot of the spot market. But we’re also seeing a lot of cement, a lot of petcoke, [cargo] that is infrastructure-related.” According to Wade, “Last month, between eight and 10 Ultramaxes [bulkers with capacity of 60,000-65,000 DWT] of steel went from South Korea to the U.S. and a half a dozen went to the Med and the Continent. There’s a lot going on. And it’s long-haul. And I don’t want to jinx it, but it’s very, very exciting times.”

Cape rates topped $26,000 per day in mid-January before retreating all the way back to $10,300 per day in mid-February. On Wednesday, current Capesize rates jumped 14.5% to $13,900 per day, closing the gap with smaller bulkers. “We’re in a little bit of a seasonal soft period,” said Wobensmith of the Capesize market. “We’re just coming out of the rainy season in Brazil. There’s [mining] maintenance. Vale [NYSE: VALE] in particular is still ramping up on the logistics side. My personal view is that when we get to the end of March and early April, we should start to see that seasonal upturn.”

Breakwave Advisors said in a new report, “Capesize rates have lagged and that is not surprising. Capesize fundamentals highly depend on iron ore that naturally exhibits the most seasonality of any other segment in dry bulk. As we enter March and miners begin to look for April loadings — most of the global chartering for Capesizes happens one month in advance — a tighter Capesize market is about to emerge,” predicted Breakwave. “With Panamax and Supramax rates providing significant psychological support to the overall market, the odds of another leg up for Capesize rates are looking quite good.”

Seven out of 10 bulk carriers are ‘non-eco’ with the Energy Efficiency Existing Ship Index (EEXI) likely coming into existence in just two years’ time, something that will require urgent modifications to the existing fleet or significant scrapping.

During MEPC 75 in November 2020, the International Maritime Organization approved amendments to MARPOL Annex VI, introducing an energy efficiency design index for all existing ships. Subject to adoption at MEPC 76 in June 2021, the EEXI requirements will enter into force in 2023.

Clarkson Research Services has gone through the environmental profile of the dry bulk carrier sector, a segment accounting for 35% of global fleet tonnage. Bulk carriers produced an estimated approximate 160m tonnes of CO2 last year, roughly 0.5% of total global emissions. However, while bulkers account for around 20% of the shipping industry’s CO2 emissions, the bulker fleet moved around 50% of global seaborne trade in tonne-miles last year, and emitted 6m less CO2 than the containership fleet, while moving over three times as much cargo in tonnes.

Bulker fleet CO2 emissions in 2020 were slightly below 2010 levels, despite dry bulk tonne-mile demand having grown by 40%. Bulkers have, on average, reduced speeds by 18% since 2008, while 29% of capacity is now deemed by Clarksons to be eco, a figure in line with boxships and tankers.

There are currently just seven alternative fuelled bulkers in the fleet. However, 4.5% of bulker tonnage (13 ships) on order is now LNG-capable. Just 77 bulker ports now offer LNG bunkering out of a total of around 1,800 ports worldwide, the Clarkson report issued on Friday states.

A report from earlier in February by another UK broker, Galbraiths, had similar numbers for the percentage of non-eco bulk carriers in operation today ahead of the crunch EEXI regulations coming into place. Large percentages of both the dry bulk and tanker fleets will require technical adjustments to reach the required EEXI threshold, Galbraiths pointed out.

“It is therefore likely that vessel supply will be squeezed by vessels’ average speed reducing with vessels fitting Engine Power Limit devices, an increase in dry docking and, for older tonnage, an increased incentive to scrap and for owners to look at fleet renewal,” Galbraiths suggested.

The strength of the capesize market in ­January has galvanised dry bulk sentiment, but it could be the panamaxes and smaller bulkers that take the driver’s seat in 2021. Dry bulk freight markets got off to an unexpectedly strong start, with the average for the Baltic Dry Index (BDI) in January at its highest in more than a decade. The Baltic Capesize Index had its strongest January since 2010 and period rates for one year reached the highest levels since last summer. Historically, the first quarter tends to be the weakest for bulkers as the market winds down in the run-up to the Chinese new year festivities. Incentives in China to encourage workers to stay put during the holiday season and prevent the spread of Covid-19 meant some factories remained open, which cushioned the usual market dip. However, towards the end of January, capesize rates changed direction as the usual seasonal lull finally took hold and the market began to fall in reaction to the measures introduced in China in December to calm domestic iron ore price rises.

On the whole, capesizes tend to lead the market in either direction, with volatility eventually filtering through to the smaller sizes, so it has come as a ­surprise to some to see the panamax, supramax and handysize markets not only moving in the opposite direction but achieving the highest levels in 11 years, with the BDI hitting 2,518 in mid-February. What’s more, the market fundamentals for this year are looking up for the panamax sector and below. At the time of writing, panamaxes were outperforming capesizes on the spot market. On the period front, the panamax sector has experienced higher year-on-year increases, with one-year rates up 24% from last year to an average of $13,188 per day. As panamaxes become more expensive, there is also greater incentive to split their cargoes on to smaller ships, which is adding to the positive momentum for supramaxes and handysizes. This value spike is caused by a perfect storm of factors at play that boosted the medium-sized and smaller bulkers, ­particularly in the Pacific, where the freight market is particularly strong at the moment.

The unofficial ban on Australian coal to China has taken dozens of bulkers out of the market, with around 60 vessels waiting off the coast of China to discharge their cargo. In turn, this has led to an increase in Indonesian coal exports to China. In the short term, the cold snap in the northern hemisphere has increased coal demand and provided an additional bonus for panamaxes.

As countries emerge from the pandemic and vaccines are rolled out, we are seeing global commodity restocking. With commodity prices healthy, there is much positivity in this area, and this is where the smaller bulkers have an advantage over the capesizes, thanks to their versatility in carrying a wider range of cargoes. China is, of course, the forerunner in this market rally with robust demand, providing a boost for the corn and soybean trade. The latest five-year plan from Beijing is expected to have a stronger emphasis on food security management than ever, by focusing on market stabilisation and grain management. Increased grain commodities are forecast to come from the US, where traditional trade levels are expected to resume, leaving behind the impact of the US-China trade wars and the 2019 swine fever outbreak that reduced Chinese feedstock demand.

After a strong start to the year in what is traditionally a subdued season for this sector, it will be interesting to see how this market plays out as the Far East returns to work following the holiday period. With no end in sight in the short term for commodity demand, the future for bulkers looks promising.

Rebecca Galanopoulos Jones is head of research at shipbroker Alibra Shipping

The strength of the capesize market in ­January has galvanised dry bulk sentiment, but it could be the panamaxes and smaller bulkers that take the driver’s seat in 2021. Dry bulk freight markets got off to an unexpectedly strong start, with the average for the Baltic Dry Index (BDI) in January at its highest in more than a decade. The Baltic Capesize Index had its strongest January since 2010 and period rates for one year reached the highest levels since last summer. Historically, the first quarter tends to be the weakest for bulkers as the market winds down in the run-up to the Chinese new year festivities. Incentives in China to encourage workers to stay put during the holiday season and prevent the spread of Covid-19 meant some factories remained open, which cushioned the usual market dip. However, towards the end of January, capesize rates changed direction as the usual seasonal lull finally took hold and the market began to fall in reaction to the measures introduced in China in December to calm domestic iron ore price rises.

On the whole, capesizes tend to lead the market in either direction, with volatility eventually filtering through to the smaller sizes, so it has come as a ­surprise to some to see the panamax, supramax and handysize markets not only moving in the opposite direction but achieving the highest levels in 11 years, with the BDI hitting 2,518 in mid-February. What’s more, the market fundamentals for this year are looking up for the panamax sector and below. At the time of writing, panamaxes were outperforming capesizes on the spot market. On the period front, the panamax sector has experienced higher year-on-year increases, with one-year rates up 24% from last year to an average of $13,188 per day. As panamaxes become more expensive, there is also greater incentive to split their cargoes on to smaller ships, which is adding to the positive momentum for supramaxes and handysizes. This value spike is caused by a perfect storm of factors at play that boosted the medium-sized and smaller bulkers, ­particularly in the Pacific, where the freight market is particularly strong at the moment.

The unofficial ban on Australian coal to China has taken dozens of bulkers out of the market, with around 60 vessels waiting off the coast of China to discharge their cargo. In turn, this has led to an increase in Indonesian coal exports to China. In the short term, the cold snap in the northern hemisphere has increased coal demand and provided an additional bonus for panamaxes.

As countries emerge from the pandemic and vaccines are rolled out, we are seeing global commodity restocking. With commodity prices healthy, there is much positivity in this area, and this is where the smaller bulkers have an advantage over the capesizes, thanks to their versatility in carrying a wider range of cargoes. China is, of course, the forerunner in this market rally with robust demand, providing a boost for the corn and soybean trade. The latest five-year plan from Beijing is expected to have a stronger emphasis on food security management than ever, by focusing on market stabilisation and grain management. Increased grain commodities are forecast to come from the US, where traditional trade levels are expected to resume, leaving behind the impact of the US-China trade wars and the 2019 swine fever outbreak that reduced Chinese feedstock demand.

After a strong start to the year in what is traditionally a subdued season for this sector, it will be interesting to see how this market plays out as the Far East returns to work following the holiday period. With no end in sight in the short term for commodity demand, the future for bulkers looks promising.

Rebecca Galanopoulos Jones is head of research at shipbroker Alibra Shipping

Evidence is mounting to support an escalating recovery in demand for dry bulk commodities in countries other than China, attributed to both rising consumption and restocking of raw materials. The latest HORIZON Dry Bulk Monthly report from Maritime Strategies International notes that even with China currently celebrating Chinese New Year, earnings across all dry bulk segments have been remarkably firm in a period typically characterised by seasonal weakness.

When assessed against pre-pandemic January 2020, Capesize daily spot earnings in January this year were 186% higher yoy, Panamax 104%, Handymax 91% and Handysize 71%. Notably, the last time bulker freight rates increased from December to January was 2009-2010.

One indicator of this is iron ore trade; comparing imports by world excluding China, January volumes were up 3.3% compared with a pre-COVID Jan-2020. Coal and grains trade have also played a part in the firming market: cold weather across Asia and Europe has supported coal import demand, whilst China’s grains imports continue at pace; grains trade in January was also supported by an uptick in sales from Russia prior to an export ban taking effect in February.

The Panamax freight market has been particularly strong in recent weeks, supported by temporary factors including worsening ice in the Baltic Sea. The coincidence of rising demand with temporary logistical disruptions is an important factor behind the uptick.

“Aside from firming demand, dry bulk market balances continue to be supported by reduced productivity on the back of high port waiting times while anecdotally a surge in costs to ship via containers has also driven more breakbulk cargo to be moved in dry bulk carriers, box-shaped Handysize tonnage in particular,” says MSI Senior Analyst Alex Stuart-Grumbar.

Higher dollar per tonne spot rates have also been propelled upwards by rising bunker prices, supporting margins for the most fuel-efficient modern tonnage. These dynamics have been positive for earnings in most segments, with only the Capesize benchmark faltering in early February due to poor weather conditions in export markets.

On the supply-side, January can be an indicator of what is to come for the year, as this is a preferential month for owners to take vessel deliveries. Fleet data shows that 5m dwt was delivered in January versus 1.7m dwt recycled. This compares with 6.9m dwt delivered and 1.0m dwt scrapped in January 2020, suggesting that the pace of fleet growth is slowing.

“MSI forecasts net fleet growth to slow by a third across the segments this year and strong demand growth bodes well for near-term earnings. However, the direction will be different by segment; sub-Capes will retain relatively strong levels through Q1 and Q2 before softening, whilst the Capesize market will see more sustained support in the second half of this year, assuming the emerging downside risk related to Chinese steel markets is offset by the continued recovery in raw material demand by the rest of the world,” adds Stuart-Grumbar.

Bulkers could be facing a tough year despite an unusually strong start, according to shipping association BIMCO. China’s aim of moving towards a more consumer-oriented economy will threaten the continuation of 2020’s high growth in imports of dry bulk commodities, which were spurred by infrastructure-supporting stimulus measures, said chief shipping analyst Peter Sand.

“Stimulus packages in the rest of the world have focused more on securing the demand side of the economy — policies that benefit container shipping more than dry bulk,” he said, adding that as the pandemic continues and governments try to support individuals, infrastructure-heavy stimulus projects appear a long way off. There is no guarantee, either, that these projects will materialise, and therefore “cannot be counted on to provide the fuel for a dry bulk recovery”.

“Instead, any recovery will be slow and will vary by sector,” he added. “Overcapacity could once again hamper shipowners’ and operators’ ability to make a profit, especially as currently low bunker prices, which supported profits in 2020, are rising again.”

BIMCO expects fleet growth at 2% this year, the lowest in several years, mainly arising from fewer deliveries. That compares with 3.8% last year. It anticipates about 27m dwt to be delivered this year, compared with 48.9m dwt in 2020, reflecting the lower orderbook which stands at 51.4m dwt, almost half that at the start of 2019. However, it estimates 9m dwt to be demolished in 2021, compared with 15m dwt scrapped last year.