It has been a busy week in shipping with the Hamburg’s Shipbrokers Association celebrating their annual Eisbeinessen while several publicly traded shipping companies reporting earnings, which were more or less lousy, reflecting a lousy underlying freight market, but high on hopes and expectations.  The ruling mood is that the worst is behind us in shipping and now that’s the time to go long.  Trying to capitalize on the window of opportunity, there has been a constant stream of ‘corporate level’, big transactions (as opposed to piecemeal, time-consuming individual transactions of vessels that were so difficult to come by a few short months ago.)

The headline news item of the week has been not the uninspiring earnings report by ‘bellwether’ Scorpio Tankers (ticker: STNG), but their announcement that their affiliated company Scorpio LPG traded their newbuilding contracts of eleven VLGCs for 30% stake in Dorian LPG Ltd., with the expectation that within a year Dorian will be publicly listed on one of the US exchanges (presently on the Oslo OTC) providing liquidity for Scorpio shareholders (Scorpio has already contributed $83.9 mil on newbuilding deposits and will provide $1.9 mil cash contribution to Dorian, while Dorian will take over outstanding progress payments to the shipbuilders for $742 million.)  And not to be accused of being a tad too slow or preferential of certain market sectors, by the end of the week, another company affiliated with the Scorpio group, Scorpio Bulkers (ticker: SALT) was raising an additional $300 million on the Oslo OTC (an astronomical $850 mil in total in equity raising since June 2013) for 22 more newbuidings, in addition to the 26 bulkers already on order.  Elsewhere, members of the management team associated with Nordic American Tankers (ticker: NAT) have tied up six modern, high spec PSVs, with an estimated pricing of $300 million, for an IPO under the name of Nordic American Offshore.  It also has been reported that just this week Hyundai Mipo Dockyards (HMP) has received orders for 16 MR tankers worth just short of $500 mil; buyers are reported to be clients of the oil major Shell and the price per vessel is an exceptionally competitive $31 million per vessel; given the name of the buyer and the magnitude of the deal, it has been estimated that the pricing may be at even below break-even for the shipbuilder.

Who said the capital markets gave up on shipping and there is no appetite for big deals?

VLCC Tanker MT „ARDENNE VENTURE” (Source: Frontline)

On the more tedious secondary sale & purchase market, there has been overall robust activity focused around ten-years-old or older tonnage; in the crude tanker market, the sale of the VLCC MT „ARDENNE VENTURE” (318,000 dwt, 2004, HHI) at reportedly $40 mil shows price consolidation over ‘last done’ sales of MT „BW LUNA” (299,000 dwt, 2003, Daewoo) at $36 mil. and of MT „EAGLE VIENNA” (306,000 dwt, 2004,  Hyundai Samho) at $40 mil, each a month ago.  The buyers for the MT „ADRIENNE VENTURE” were Sinokor Merchant Marine of South Korea which have proven to be fairly active buyers this year (their seventh acquisition for the year), and for the matter, for the week as well, since they also purchased the aframax tanker MT „CHAMPION PEACE” (106,000 dwt, Namura, 1999) at $11 mil (which seems pricier than their own previous purchase of MT „KWK ESTEEM” (105,000 dwt, Hyundai Samho, 2000) at $12 mil last month, which by itself was a step-up over the sale of MT „HELLESPONT TATINA (106,000 dwt, Sumitomo, 1999) at $9.6 mil.)  In the Suezmax tanker market, the much circulated MT „OLIVER JACOB” (157,000 dwt, Daewoo, 1999) finally found a home in Greek hands at $16.5 million. There is no recent comparable for this suezmax sale, but this is the fourth asset disposition this year from Salamon AG based in Dortmund, Germany.  Whether these sales provide any signs of market improvement is relative in nature as the prices of this vintage vessels has just collapsed; five years ago, all the vessels transacted this week were valued at least twice as much as their current pricing, which itself is no more than 2x their present scrap value (with easily 10+ years remaining economic life.)

MT „SICHEM PACE” (Source: http://www.shipspotting.com/)

The product tanker market has been rather quiet this week with no further news after the fleet sale of J Lauritzen to Hafnia Tankers reported last week, and another exhibit under their observation of corporate transactions at this phase of the cycle.  There has been an interesting sale of the stainless steel tanker MT „SICHEM PACE” (20,000 dwt, IMO II, 20 segs, 22,200 cbm, heating capacity 65 °C, Uzuki Zosensho, 2006) at $21.5 mil.  Stainless steel tankers has been one of the few markets that has managed to stay off the shipping radar for a long while, and it’s interesting to see future developments in this sector.  The current sale is in line with the sale about a month ago of the MT „BOW PLATA” (19,980 dwt, IMO II, 22 segs, 21,700 cbm, heating capacity 70 °C, Kitanihon Zosen, 2006) to financial buyers Breakwater Capital in London. Previous comparable sale was of sisterships MT „BOW LIMA” and MT „BOW CAPE (19,980 dwt, IMO, 20 segs, 20,500 cbm, heating capacity 80 °C, Fukuoka S.B, 2007/2008 respectively) at $23 mil each, indicating that the market has been flat vis-à-vis asset pricing improvement in almost any other market segment for market competitive tonnage.  That’s an interesting observation.

Moving on to the dry bulk market, Baltic Trading Limited (ticker: BALT) acquired en bloc two sistership capesize vessels MV „K. HAPPINESS” and MV „K. GLOBAL PRIDE” (179,000 dwt, HHI, 2011/2012 respectively) at $103 mil, which is another recent improvement over the current going rate of $52-53 mil for 2013 cape tonnage.  Vista Shipping of Ukraine acquired the MV „GRAND CLIPPER” (168,000 dwt, Halla Engineering, 1996) at $15.5 mil which is the fifth cape acquisition for the Ukranian owner / commercial manager year-to-date, bring their fleet count to eleven vessels.  The Japanese built panamax bulker MV „BOTAFOGO”  (76,000 dwt, Imabari, 2001) was sold at $14.6 mil, in line with recent transactions.  In the handysize market, the Japanese-built MV „SOUTHERN FIGHTER” (29,500 dwt, 4x30T, Shin Kurushina, 1998) was sold at $8.7 mil to Korean buyers, while the much modern MV „CIELO DI SAVONA” (33,000 dwt, 4x30T, Shin Kochi, 2008) was sold at $20 mil to Greek buyers. The evocatively named MV „LITTLE MANATEE” (38,000 dwt, 4x30T, Nakai SB, 2012) – this is sized-up ‘handysize’ and a bit too big for her size, and probably that’s why the playful name, was sold at $23.5 mil, showing again in yet another asset class, the great divide between the young and the ‘teenagers’ of the world fleet.

Nothing newsworthy to report in the secondary containership market, while the demolition market has been bouncing along with relatively few sales reported (inverse correlation with freight and remaining markets, in general.)  Prices have been about $430 / ldt and $400 / ldt for tanker and bulkers, respectively, in the sub-continent.  Still there have been worries that previously done sales may not live up to their expectations in terms of performance despite the lack of tonnage heading to the scrapyards.  With India heading to the Diwali holidays there will be some time for the market ‘to settle’ and also to see the impact from the Reserve Bank of India (RBI) increase this week of interest rates by 25 bps (the second such move in two months, under the new leadership of Gov. Raghuram Rajan), in an effort to stabilize the  Indian Rupee (INR) and the impact thereof on future demo pricing.

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

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer and other important information and terms. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this and related websites. Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you kindly for your consideration.

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.)

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.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer and other important information and terms. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this and related websites. Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you kindly for your consideration.

The decline of freight rates and of the BDI notwithstanding later in the week, hope springs eternal that shipping is at the first stages of a cyclical recovery.  It’s to be seen at which phase of the cycle we are in, but for now let’s all enjoy what the market brings!

The momentum continues in many markets, capital markets and private markets, and the volume of sale & purchase transactions has been rather robust; also, asset prices have been showing signs of improvement (please see our last report on capes from last week), or at the very very least, holding steady.

For tankers, ‘year of built’ 2000 has become a psychological barrier, with tankers built prior to that getting stigmatized definitely as “bad” (read, priced at scrap-related levels), anything built after 2000 but newer than ten years seen as “ugly” (for the sellers that is, but rather fertile for a ‘value-deal’ for the buyers, in our opinion), and anything newer than ten years perceived as “good”.  And if one is in need to differentiate further, vessels on order are the best (“pretty ladies”, as the saying goes.)

The pumproon-design product tanker MT „UNIQUE SUNSHINE”  (47,000 dwt, 2001, Onomichi) was sold at $12 mil to Greek interests (“ugly”), while slightly smaller but newer MT „PIONEER SUNSHINE” (46,000 dwt, 2004, Shin Kurushima) was sold to Greek interests, again, at $17 mil (“good”). There has been definite price improvement (and robust activity) over the last few months for this asset class, as in May the good vessel MR „HALLINDEN” (46,000 dwt, 2008, Shin Kurushima) was sold at just excess of $20 mil to Greek interests, again.   Four modern, high quality aframax tankers (but of narrow beam) built at Sasebo H.I. in 2007 & 2008 were sold from clients of Cido Shipping (Japan) to Zodiac Maritime (Singapore) on private terms, at a price rumored to be about $104 million (between $25-27 mil per vessel); with about $52 million replacement cost, this is a “very ugly” transaction despite the age and pedigree of the vessels, but we suspect there is more to it than it meets the eye, given the nature of the buyers and sellers.  And, speaking of “very ugly” transactions, the Daewoo-built in 2003 VLCC MT „BW LUNA” was sold to an active recently Indonesian buyer, Soechi Lines, at $36 mil (as a matter of comparison, less than four years ago, such vintage vessels were well in excess of $50 mil).  However, there has been improvement given that a sistership vessel MT „BW LUCK” was sold at $35 mil earlier in the summer. The theme with crude oil tankers these days is that their market is so bad that it cannot get any worse (“don’t get no respect!” in the immortal words of Rodney Dangerfiled), which is a nice and soothing line, but not a great investment thesis…so, we have been a bit surprised by the rumors that a major VLCC fleet acquisition may be in the works based on the logic that …things in the crude tanker market cannot get worse… try to keep this mind (and a long balance of working capital to maintain the position)… but things, otherwise, like will not get worse.

The dry bulk market with its longer tail of charterers and more flexible standards overall (compared to tankers) has been active too, with Japanese-built resales of Kamsarmax tonnage committed to Greek buyers in excess of $31 mil. The fifteen-year old MV „ORIENTAL SUN” Japanese-built panamax bulker was sold just below $11 million, while the ten-year old MV „SEA OF GRACIA” panamax built in Japan was sold at just below $17 million (in en bloc deal with MV „SEA OF HARMONY”; we understand that the vessels were no exact sisterships.) And, in the ever surprising cape market, the 1997-built at IHI in Japan cape MV „SU-OH” was committed at $16.5 million.  The “ugly” bunch in this market may have more wind in their sails by virtue of the nature of their trade.

The showstopper however has been the newbuilding market where, honestly, we have lost count of newbuidings recently; just the broader news, Scorpio Bulkers (SALT) has announced orders in the magnitude of $400 million, and a reference name Greek owner cape / VLOC orders in excess of $1 billion. A few more orders for several MRs from Navig8, several post-panamax 10,000 TEU containerships (ULCVs), a few more Newcastlemax orders by the Oldendorff Group in Germany, etc, etc  We understand that most S. Korean and good quality Chinese yards are solidly booked till end of 2016, and several Japanese builders have managed to pick up orders from international buyers over the last six months.

World Economic Growth Revisions (Graphs from the Financial Times, Oct 8, 2013)

For someone having tangential knowledge of shipping, the active orderbook would imply that things in shipping are great.

However, just last week, the IMF lowered forecasts for economic growth in 2012 to 2.9% (the lowest post-crisis) and 3.6% in 2014 on ‘subdued medium-term growth trajectory’ expectations. And, for September, Chinese exports dropped unexpectedly by 0.3% year-over-year against expectations of 6% growth, it was announced by the Customs Administration over the weekend.

Full steam ahead! 2008, here we come again in a boatload of newbuilding orders!

© 2013 Basil M Karatzas & Karatzas Marine Advisors & Co.

No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders.