S&P, Newbuilding and Demolition Update (December 15th, 2013)

Since our last market review two weeks ago, Nelson Mandela, a great human being and a great leader passed away in South Africa, but ‘selfie pictures’ by dignitaries attending the memorial service got as much attention as the man himself. In North Korea, a 67-year old ossified mummy was summarily executed on charges (among others) of ‘alcohol abuse’ and ‘womanizing’  (no wonder N Korea is not a shipping hub), while on reflection of a bull market in equities, MasterCard International (ticker: MA) has announced a 10-for-1 stock split.  Despite the bull market in equities (and commodities, and …), many companies are still hesitant to initiate stock splits – possibly reflecting on the QE-propelled bull market rather than consumption and confidence driven earnings, and thus, MasterCard’s split of about $800-share got attention; for shipping equities, reverse-stock-splits in order to meet the regulatory $1/share threshold are still more common than normal stock splits.

However, shipping’s proxy index, the Baltic Dry Index (BDI), has been having an exceptional time and closing at 2,330 on Friday, up approximately 28% in December, and 230% up year-to-date (BDI stood at 698 at the close of 2012.) The proverbial cat is out of the bag now, and more analysts are calling for a market recovery, basically on the main thesis that things are not as bad as they seem and the outstanding world orderbook has been declining over the last year as a percentage of the existing world fleet.  That may be the case, but institutional investors keep ordering (or supporting companies to order) more newbuildings; and the Chinese have announced these week some meaningful subsidies for still more newbuildings for Chinese-flagged tonnage.  Despite any doubting, we should be as festive as the season we are heading to, and note that presently, crude tanker spot freight rates – for ALL asset classes are higher than $30,000 pd, capesize vessels are making more than $40,000 pd, and in general most vessels – outside smaller containerships – trade on a cash positive basis; no a small achievement, especially having all markets moving higher on sync.

MV „CAPE PROVENCE” in laden condition (Image source: www.shipspotting.com)

MV „CAPE PROVENCE” in laden condition (Image source: http://www.shipspotting.com)

Cargill International has sold three capesize newbuilding contracts to the Scorpio Group (180,000 dwt, 2015, SWS) at a robust $57 million each, while simultaneously acquiring slightly older but much more competitively priced comparable tonnage: MV „SCOPE” (174,000 dwt, 2006, SWS) at $33 million, MV „PROUD” (178,000 dwt, 2009, SWS) at $42.5 million, and MV „CAPE PROVENCE” (177,000 dwt, 2005, Namura Shipbuilding) at $34 million, basically saving them $3 million per vessel per annum in depreciation.  We understand that the vessels acquired have short-term charter attached at below present market levels. The modern capesize MV „HOUHENG 3” (180,000 dwt, 2012, HHIC-Phil) was sold at about $50 million to Chinese interests, a rather soft price (compared to Cargill’s vessels), but the shipbuilder for the MV „HOUHENG 3” is not on the preferred list of many buyers. The older and out-of-class MV „GLORY ADVANCE” (171,000 dwt, IHI, 1996) was sold at auction at a scrap related price of $10 million to Chinese buyers, while the smaller and slightly older MV „PACIFIC CHALLENGER” (149,000 dwt, Dalian, 1995) managed a better pricing at $12 million with six-month forward delivery to her buyers, Winning Shipping in China.

MV „DYNA CRANE” (Image source: www.shipspotting)

MV „DYNA CRANE” (Image source: http://www.shipspotting)

On the panamax dry bulk front, the vessel MV „MARINE PROSPERITY” (73,500 dwt, Sumitomo, 2001) achieved a very respectable $16.5 million from buyers of Swiss Marine, while the NYK-controlled, gearless MV „SHIRANE” (77,500 dwt, Mitsui SB, 2000) obtained a solid $15.5 million from Indonesian interests. [This is the second dry bulk vessel disposed by NYK of late, as we recently reported the sale of MV „HOKURIKU MARU” (94,250 dwt, Mitsubishi HI, 1995) at $8.9 million to Chinese buyers]. As a general comment, panamax bulkers are not behaving greatly as an asset class in the last year, as their market seems to get cannibalized from bigger vessels (kamsarmax, post-panamax, etc) and smaller vessels (ultramax, etc) and there is the general belief that once the expanded Panama Canal opens, ‘panamaxes’ will be one of the worst hit asset classes. The Supramax market has been more active in general, with MV „DYNA CRANE” (55,750 dwt, Mitsui SB, 2006) achieving a solid price of $21.5 million to Olympic Shipping, which sale compares well with the sale in last month of MV „MEDI SHANGHAI” (56,000 dwt, Mitsui SB, C4x30T, 2005) at $19.5 million. The slightly older MV „ACS DIAMOND” (53,250 dwt, New Century, C4x35T, 2005) achieved a lowly $15 million. Lauritzen Bulkers has also disposed of MV „TOUCAN BULKER” and sistership vessel MV „THUNDERBIRD BULKER” (58,000 dwt, Tsuneishi Cebu, C4x30T, 2011) at about $30 million each to Swiss Atlantique.

MV „TOUCAN BULKER” (Image source: www.shipspotting.com)

MV „TOUCAN BULKER” (Image source: http://www.shipspotting.com)

The handysize / ‘handymax’ markets have also been busy, with MV „NEW RAINBOW” (42,740 dwt, IHI, C4x30T, 1998) achieving about $11.25 million, while MV „AZURE SKY” (45,750 dwt, Hashihama, 1995) a comparable price of about $8.5 million. In the handysize proper market, MV „TUNA 7” (32,250 dwt, Saiki HI, C4x30T, 1999) obtained a very respectable price in excess of $11 million, while same-builder but smaller vessel MV „TAO TRIUMPH” (23,750 dwt, Saiki HI, C4x30T, 1997) obtained $7 million. It was a better deal for the buyers of MV „SUPER ADVENTURE” (28,750 dwt, Tsuneishi Zosen, C4x30T, 1996) at $8.2 million, while the Turkish controlled MV „HANJI INSTANBUL” (27,500 dwt, Hanjin HI, C4x30T, 1997) obtained $9 million. MV „RABEE” (28,750, C4x30T, 1998) was sold to Russian buyers at slightly less than $10 million. Wisdom Marine has allegedly flipping two handysize newbuilding contracts (34,000 dwt, Namura, C4x30T, 2016) at $25 million each to unidentified buyers, while two prompt resales from Jiangmen Nanyang (39,000 dwt, Jiangmen Nanyang, C4x30T) to European buyers fetched $23 million each. One can tell right away that this market appreciates quality, which is reflected in pricing.

The tanker market overall has been fairly calm on the sale & purchase front, as people are still looking at charter rates in disbelief: while VLCC rates have been improving for more than a month now, since our last weekly update Suezmax and Aframax rates jumped from less than $10,000 per diem (which has been more or less the year average) to above $30,000 per diem. Oh, the miracles of the season! Ridgbury Tankers in the US have confirmed the acquisition of MV „RIO GENOA” (160,000 dwt, Universal SB, 2005) at $35.5 million, and Indonesian owners disposed of MT „GAS BALI” (5,000 cbm, Shitanoe Zosen, Pressurized/Butane, 2007) to clients of Epic Gas at $13.5 million.

The demolition market has been rather subdued (inversely correlated to freight rates,) however, recently announced subsidies in China this past week may have greater implication for the market overall than so far noted. You can read our commentary on the announcement by following this link!

The markets definitely have been busy, no doubt, for freight and sale & purchase; one has to make hay while the sun shines as they say, or ‘hoist one’s sails when the wind is fair’ as we people in shipping ought to say. Market activity is good and always welcome, but one also has to take into consideration that in about a week, the market will be ‘closed’ for a month; thus, charterers and everyone else are trying to clear their desks before go on leave, and some of this activity may very well end up being just seasonal.

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

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1 thought on “S&P, Newbuilding and Demolition Update (December 15th, 2013)

  1. Pingback: S&P Weekly Report | Full Steam Ahead! The Maritime Blog

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