The dry bulk shipping market may face a challenging 2012 as a nascent recovery in demand will likely be short-lived and may not be enough to drive up rates, FBR Capital Markets analysts said and downgraded two shipping companies.

Ship owners went on an ordering spree before the economic turmoil, resulting in an oversupply that has squeezed their pricing power.

A slowdown in the global economy has also made access to funds difficult.

"We expect market rates to slip significantly as we approach year-end, though we acknowledge that rates are unlikely to return to 1H11 lows," analysts wrote in a note to clients.

They downgraded Baltic Trading Ltd and Starbulk Carriers Corp to "market perform" from "outperform." They also reduced their price targets on a number of shippers' stocks.

The brokerage, which expects dry bulk markets to be remain oversupplied through most of 2013, said the recent strength in the capesize market may not last till 2012.

The capesize market has shown strength in recent months on geopolitical factors like increases in Chinese iron ore imports from Brazil and tariff increases on Indian exports. (Reuters)