MIDF Research believes that the worst in the dry bulk shipping sector is over, as fundamentals have improved, supported by better global economic conditions as well as the rollout of railway projects in China.

MIDF Research said in a report yesterday that tonnage demand for dry bulk shipping grew by 7% year-on-year in the first quarter of 2014, outpacing the growth of the global fleet supply of 5%.

"This has resulted in a net improvement of 2% in fleet utilisation and has lent support to the current freight rate," it said.

The research house noted that the average spot rate for Capesize, the largest kind of dry bulk vessels, rebounded from the February slump and gained more than 200% month-on-month to US$18,600 per day in March.

"The other segments in dry bulk vessels performed relatively stable except for Panamax, which dropped by 14% to US$8,700 per day in March, due mainly to lower grain and soybean exports from South America," it said.

MIDF Research acknowledged however, the short term outlook will be weighted down by the high iron ore inventory in China, which in turn will dampen import demand of iron ore commodities.

As the weighted average of freight rates for the four different sizes of dry bulk vessels, the Baltic Dry Index (BDI) had declined significantly over the last few weeks, due to slower manufacturing activities and inventory built-up in dry bulk commodities, which eased transportation demand.

Nevertheless, for the year-to-April 11, the average BDI was at 1,344, which is still substantially higher than 2013 by 67.2% and the outlook is expected to be brighter.

MIDF Research has maintained a "neutral" call on the shipping sector as well as MISC Bhd and Malaysian Bulk Carriers Bhd (Maybulk), with a target price of RM6.21 and RM2.30, respectively.

The research house expects MISC to narrow down losses in FY14 due to higher year-to-date average charter rate.

"There is a higher chance of 2014 becoming a recovery year for the tanker market as it is supported by fundamentals despite capacity glut still being prevalent in the tanker sector," it said.

For Maybulk, it is expected to be able to turn around the operating losses in its core dry bulk segment within the next one to two quarters as more balanced supply-demand gap is seen.

"Another near term catalyst for the stock is the exposure in marine offshore support service (OSV) through its associate PACC Offshore Services Holdings group, which is expected to be listed in Singapore soon and should give Maybulk RM100 million in one-off capital gains," it said.