S&P, Newbuilding and Demolition Update (October 20th, 2013)

A relatively quiet week not only for the US government but also for the shipping markets; probably a breather was necessary after the active schedule of the last few weeks.  Dry bulk freight markets softened marginally for the week, but freight rates have remained comfortably in cash flow positive territory for most types of vessels.  For instance, cape rates worldwide averaged about $32,000 pd for the week, with about $40,000 pd for the Brazil-China front leg.  VLCC rates have shown some improvement on increased fixing activity as 132 fixtures have been recorded for the October schedule, an annual high watermark. With China surpassing the USA as the biggest oil importer in September, IEA’s forecast that China’s oil needs will increase by 3.7% in 2014, owners wish to believe that such trade will allow for greater ton-mile and opportunities for triangulation (from cargoes from West Africa.) On the increase of domestic production of (light) crude in the US, W Africa imports of light crude to the US have been low which has caused Suezmax rates to take another dive reaching $6,000 pd. Some of the Suezmax tankers chasing this market were bought post-Lehman at close to $70 million.  Product tanker rates for both clean and dirty tonnage also softened, especially the USG-UK/Cont ‘backhaul’ trade of diesel.

In the tanker market, the most remarkable transaction of the week has been the sale of the LR1 tanker MT „LR REGULUS” (70,000 DWT, 2004, Daewoo) at $21 mil, which is in-line over ‘last done’ in September on the sale of MT „ANGEL 66” (71,000, 2005, Universal); both vessels are trading dirty, but „REGULUS” is with 81,000 cbm tanks, 12 tanks, 14 pumps and heat exchangers, vs. „ANGEL” with 77,000 cbm cargo tanks, 12 tanks, 3 pumps and no heat exchangers.  The Teekay-controlled small sisterships MR tankers MT „CITRON” and MT „CITRUS”  (47,000 DWT, 2007/2008, Hyundai Mipo Dockyards) have been sold to US-based Diamond S Shipping (with bareboat back for six months) at $54 million. Given the narrowing of the gap between LR1 and MR2 tanker pricing, and given that an LR1 holds about 30,000 tons of additional cargo over an MR2, one has to wonder whether an arbitrage opportunity has been created in this market.

In the dry bulk market, the Dolphin 57 design, modern supramax vessels MV „GUOYU 51” and MV „ORIENTAL TRADER” (57,000 DWT, 2011/2012, Yangzhou Guoyu, 4x30T cranes) were sold to Greek buyers (funded by US-based institutional investors) at appr. $41 mil.  In general, dry bulk assets prices have shown 10%+ improvement over the last month; as a result, we have seen more activity in the market for vessels to be sold from shipbuilders or owners who have placed orders in the last year and now are trying to exploit the recent boom / activity and ‘cash out’.  We are not sure whether these are signs of little faith in this market recovery, or abiding by the adage that ‘no-one went broke by taken profits’. For instance, eco-design Chinese resales for kamsarmax tonnage is being shopped at the $27 million range where there is a $2-3 million profit for the sellers; given that the deposit may have been 20% of the contract price, the above mentioned capital gain can translate into a well-in-the-double-digit-return territory.

Aframax Tanker MT „EAGLE COLUMBUS" (Image Source: © Karatzas Marine Advisors & Co.)

Aframax Tanker MT „EAGLE COLUMBUS” (Image Source: © Karatzas Marine Advisors & Co.)

In the demolition market, there has been an ever-increasing improvement in pricing as well.  Despite the Eid Holidays in the sub-continent, pricing for tankers has moved to $430-435/ldt range, an impressive improvement given than in August tankers were fetching $380-390/ldt.  Still, there have been major concerns that cash buyers have been optimistic on their own account, without often having secured end buyers, a potentially risky situation that could result in many defaults if end buyers do not come to share the cash buyers’ optimism. Dry bulk vessels are fetching about $20/ldt less than tankers at about $415-420/ldt, and the price differential between the Chinese and sub-continent demolition markets has started yawning again, reaching about $80/ldt.  The most noteworthy demolition transaction of the week has been the sale of two sistership aframax tankers built in 1993/1994; the vessels were sold on ‘as is, where is’ basis, delivery Labuan, at about $405/ldt with about 15,950 ldt/vessel.  The vessels were controlled by US-based fund, despite their ‘misleading’ naming MT „EAGLE CORONA” and MT „EAGLE CARINA”, as they were subject to a sale-and-lease back transaction in the summer of 2008 at $42 million each.

© 2013 Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

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