S&P, Newbuilding and Demolition Update (October 6th, 2014)

Fall season is here, but the expected seasonal recovery of the shipping market has still to register an impressive presence; dry bulk rates have been moving sideways on rather uninspiring levels, and tanker rates, the star of the summer, have been rather marginally softening instead of seasonally increasing. There are factors that have been affecting the overall market, and shipping rates are just the end result of macro-economic factors. The U.S. economy seems to be growing slightly better than expectations, and the Fed’s statement that interest rates will be increasing sooner than later has moved the dollar higher against most currencies. And, implicitly, higher interest rates make ‘carry’ positions in the commodities market a riskier more expensive proposition, thus pushing down commodities pricing. At the same time, Chinese growth seems to be decelerating, which has recriminations as well on the commodities (and FX) markets worldwide, primarily pushing down iron ore pricing (and the highly correlated Aussie Dollar). In the oil market, Saudi Arabia, the de facto leader of the OPEC sellers’ club, unilaterally and un-expectedly dropped oil pricing to Asian clients by $1 / bbl; this is one of the few times in OPEC’s history that the Saudis go after market share rather than pricing power, and reports from the OPEC’s last meeting in Vienna suggest a highly dis-functional club at this stage, and likely the $1/bbl price reduction will not be the last market-moving news from Vienna. OPEC’s search of a new identity is another side-effect and the U.S. shale oil game changer; till a few years ago, OPEC had a great captive market in America’s SUVs, which now can be filled at US$3.44/gallon for premium gasoline (our sympathies to our European readers and the ca. €1.70 / L gasoline pricing (approximately US$ 8 / gallon)).

The week has been light as China was closed for most of the week for their National Day, Hong Kong too (formally and informally with the ‘Umbrella Revolution’), Islamic countries for Eid Al-Addha, and Germany was celebrating Day of Unity (Tag der Deutschen Einheit) on Friday. Sale & purchase activity has been moving along the recent trends, of modern vessels sought by publicly traded companies and companies with access to the financial markets, while private owners usually are focusing on older and lower-ly priced tonnage, in absolute terms.

MT BW AMAZON 10 w: TORM CARINA

Product Tankers ‘BW Amazon” and ‘Torm Carina’ in New York Harbor. http://www.basil-karatzas.com

In the tanker market, Flagship Marine Ventures (JV between Prime Marine of Greece and U.S.-based fund) sold two LR2 tankers with 2015 delivery to Scorpio in Monaco; Scorpio Tankers (publicly listed) has not issued any required press releases, so the assumption is that Scorpio-privately-held acquired sisterships MT „Flagship Rose” and MT „Flagship Dahlia” (115,900 dwt, Daehan, 2015) for $57-59 million each, depending on the report, a rather strong price nevertheless; in our last report, we identified the vessels as Daewoo Hulls Nos 5402 and 5403. It is understood that the contract price for these vessels was approximately $47 mil each, in July 2013. Based on standard contract terms, sellers likely generated more than 50% return on equity, not often seen in shipping! A lot of discussion has taken place about newbuilding contracts placed in an already well-supplied market, but progress payment structures can basically work as options on hulls to be flipped, and they work beautifully when they do. Great for the sellers, buyers likely a more optimistic view of the future, but the end result is that two more vessels are added to the world fleet. For older LR2 tonnage, there has been an additional sale to report, MT „River Eternity” (105,000 dwt, Sumitomo, 2006) which was sold by K-Line to undisclosed buyers at $30 million. Still in the products tanker market, the LR1 tanker MT „Moray” (76,000 dwt, Daewoo, 2000) was sold at $15 million to undisclosed buyers, a rather soft pricing.

In the MR tanker market, it has been reported that York Capital in the US has disposed of five MR2 tankers (2x SPP Resales, 2016-delivery, 50,500 dwt) at $36.5 million and (3x Hyundai Mipo Resales, Huls Nos 2446, 2447, 2448, 2015-delivery, 50,500 dwt) at $37.0 million each. Buyers have reported to be ‘undisclosed’ Far East-based or Scorpio in Monaco, again, as per a couple of market reports. Still in the MR tanker market, Korean-built tanker MT „Nord Fast” (40,000 dwt, SLS, 2008, IMO III) was reported sold by Norden in Denmark to compatriots Maersk Tankers at $19.5 million, a price seeming slightly below prevailing market.

In the stainless steel chemical tanker market, there has been an interesting sale of MT „Maemi II” (20,000 dwt, Fukuoka, 2008) to US buyers (Transportation Recovery Fund) at $27.5 million, and MT „Sunny Iris” (7,800 dwt, Fukuoka, 2000) at approximately $8 mil to undisclosed buyers.

In the dry bulk market, there have been few transactions to report, and none for modern tonnage of big-sized vessels (capes and panamax / kamsarmax). Supramax bulker MV „Sea Elegance” (50,000 dwt, Oshima (Japan), 2002) achieved $12.5 mil to Greek buyers (Drastirios Shipmanagement), which seems to be a step down in pricing from the sale of slightly newer / larger MV „Sea Lily” (52,000 dwt, Tsuneishi, 2004) at $15.5 million last month to CosBulk of Greece. This has been the most interesting dry bulk transaction of the week, which may be partially explained by the holiday schedule worldwide, as mentioned earlier.

Tonnage from Japanese sellers has been seen more frequently recently in the market, and the weakening Japanese Yen seems to be the motivating factor of the timing of such tonnage for sale. Presuming that the strength of the US Dollar will be sustainable, and given the so-so success of ‘Abe-nomics’, probably more quality tonnage from Japan will be placed in the market for sale.

MV BULK COLOMBIA 6

Supramax Bulker MV ‘Bulk Colombia’ inbound in Port of Hamburg. http://www.basil-karatzas.com

Finally, while freight rates seem to be moving nowhere, and that the orderbook overall has been strong, there are still few vessels that are getting scrapped / withdrawn from circulation. So much so, that scrap prices have been persistently at or even above the $500/ldt mark, having proved (so far) wrong doomsayers and ‘old timers’ predicting a scrap market at below $300/ldt due to an exit from the market of older / non-economical vessels. There has been increased concern that intermediaries and cash buyers have been ‘forced’ to take speculative positions to get their hands on tonnage, ideally good quality vessels to be forward to end demolition yards at a higher price, and that the market may be due for a correction. The truth of the matter is that vessel demolition has always been a high-risk business, for execution and speculation, and the present environment makes it makes it even more challenging to get vessels scrapped with a high degree of certainty of getting a contract performance, thus counterparty risk becomes of paramount importance.


© 2013-2014 Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

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