Dry Bulk Vessel Prices Lagging the Freight Market

The turnaround of the dry bulk freight market in the last eighteen months has been impressive and a welcome reminder that the shipping industry is an extremely volatile business. The overall Baltic Dry Index (BDI) has quintupled from March 2016 till now, while more spectacularly, the Baltic Capesize Index (BCI_2014) has decupled in the same period.

Still, in absolute terms, daily freight rates are just moving above operating break-even levels, and for vessels with recent or high mortgages, present earnings do not suffice to fully cover the financing cost component of the ownership. Such was the depth (and desperation) of the market that multifold increases in freight rates and barely managing to keep our heads above water!

The improvement of the freight market can be attributed to several factors such as delays in newbuilding deliveries in the short term (and precipitous drop in additional newbuilding ordering in the longer term), an accelerated scrapping pace for older and less-than-older bulkers (bringing the tonnage supply and demand balance to a relatively favorable equilibrium), a Chinese economy that keeps impressing with its strong demand for raw materials, miners that keep expanding supply (legacy projects, mostly), new trading routes and patterns expanding ton-mile, and yes, anti-globalization political rhetoric that seems to favor shipping by inserting inefficiencies in the world trade.

None of factors above single-handedly has driven the market higher, but all have contributed to a better shipping. As a word of caution, almost all of the above factors are reversible or cancellable on short order, and any thought of popping campaign bottles is premature. And still, there are several additional risk factors that still lurking in the background.

In past times, such a strong improvement in freight rates would had set dry bulk prices on fire. Vessels are valued on earnings, and quite often, on expected earnings (which explains, inter alia, how the shipping market finds itself flooded with newbuildings so often); a freight market that has been galloping ahead in the last few months would had triggered major asset appreciation and incited even loftier hopes for higher prices.

Given that capesize tonnage is the most volatile among the dry bulk sectors, we chose in the following chart to show the Baltic Capesize Index (BCI_2014) and the price of a 5yr-old capesize vessel since January 2015 (data by Karatzas Marine Advisors & Co. (KMA), and the Baltic Exchange to which KMA maintains membership). Back in January 2015, capesize prices were overvalued comparatively to the freight market and the index, as expectations and hopes were strong for shipowners to accept lower bids. A further dip where BCI dropped from 500 points to 250 points by early 2016, and capesize asset prices were dropping fast, from almost $38 mil to $25 mil. Since March 2016, the BCI_2014 index has decupled to above 3,000 points at present, but capesize asset prices have only moved up to currently $34 mil for a 5yr old capesize vessel. Quite a disconnect, a 35% increase in asset prices when the freight market is up by a multiple of ten (1,100%).

Capesize freight rates (LHS) vs capesize vessel prices (RHS) since January 2015: under-appreciating. Source: Karatzas Marine Advisors & Co.

Taking a broader look for other asset classes (panamax dry bulk, ultramax/supramax, and handysize tonnage) in the following graph, a similar trend of improving prices can be seen among all asset classes, in the range of 30-50%. There have been cases when dry bulk vessels were bought at the dark depths of the market in spring 2016 and a year later were flipped by as much as 130% actual profit, but those were few selected transactions, for older tonnage (and different economics and risk), and probably a few of those transactions were opportunistic with an element of luck. The corollaries to the story is that money can still be made in shipping for asset play (“buy low, sell high”) if timing is right, and that when shipowners were pounding the table to raise money to buy cheap ships were correct (but again, many of those owners were pounding the table to buy cheap ships at the peak of the market in 2013/2014). However, the real lesson is that there is a disconnect at present between freight rates today (and also freight rate expectations) and the level of asset prices in the dry bulk market.

Dry bulk vessel asset prices: hot, but not hot enough. Credit: Karatzas Marine Advisors & Co.

Lack of finance is, in our opinion, the real culprit for asset prices not being on fire at present (and this is not necessarily a terrible thing, in our opinion.) Shipping banks have been very tight with new business, capital markets and institutional investors are not perceiving shipping to be an industry of great prospects at the moment, and export credit from newbuilding nations is low on the list. Besides seed equity and selectively follow-ons in the capital markets and anecdotal evidence of ship mortgages from banks, financial leverage in shipping can be obtained from alternative capital funds, at levels that can easily exceed 10%; not necessarily too expensive, but barely sustainable unless one expects a great freight market looking forward.

Opportunistically dry bulk is still a great market to enter although the “easy money” has already been made in the early stage of the market bouncing from the bottom. We do not espouse a blind expansion strategy in the sector but there is an arbitrage opportunity for money to be made, especially where investments can be structured to minimize the (many) risks that are still lurking in the background. There are still cargoes to be moved worldwide, and contracts of affreightment (COAs) are still available, and strategic partnerships can be set, instead of someone jumping speculatively in the market, even today, when there is the disconnect of freight and asset prices.

A bulker in the Big Apple… probably looking for money? Image credit: Karatzas Images

© 2013 – present 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. 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 website.Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and such information is 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 for the consideration.

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‘Shipshape 10’ News for Week Ending November 27, 2016

‘Shipshape 10 List’, a list of news and articles published in the current week that a senior executive in shipping, shipping finance, commodities, energy, supply chain and infrastructure should had noticed; news and articles that are shaping the agenda and the course of the maritime industry.                                                                                                                                                                                                                               Sometimes seemingly tangential, sometimes humorous, occasionally sarcastic, but always insightful and topical.
                                                                                                                                             And, this week’s ‘Shipshape 10’:                                                                                                                                                                                                                                 The dry bulk market has been having an exceptional time, all things considered, and the Baltic Dry Index (BDI) has almost tripled since February this year when the market established an absolute bottom. Lots of researching whether this is due to a structural recovery or plain seasonality.

1. Dry-Bulk Shipping Owners Get Reprieve as Rates Rebound (from the Wall Street Journal)  

In the containership market, another bleak sign where a seven-year old panamax containership vessel was sold for scrap; less than a decade ago, such vessels were selling for $80 million. A sign of how bad the overall containership market is, and the high asset risk shipowners (and investors) have to undertake:

2. Seven-year-old Rickmers boxship sent for scrap (from Splash 24/7)    

While post-elections in the US has been lots of speculation about the direction of the new administration in terms of trade and infrastructure projects, a couple of articles on the subject:

3. TPP: What is it and why does it matter? (from BBC)

and,

4. China Touts Its Own Trade Pact as U.S.-Backed One Withers (from the Wall Street Journal)

In our last week’s report, we included an article about the Taiwanese government setting up emergency funding for their shipping sector; and, the week before that, another article about the S. Korean government supporting their shipping sector. Now, the Singaporean government falls in line, too, by supporting their offshore sector. Hopefully the Greek shipowners will manage to do without government support, if need be. (“One cannot take from someone who does not own” from the Dialogues of the Dead, Lucian of Samosata, 2nd century BC; cynic philosopher Menippos would not pay a coin (obol) to Charon, the ferryman of Hades of the souls of newly deceased, arguing as above; a very valid argument in today’s Greece, in any case.)

5. Singapore government intervenes to save struggling offshore sector (from Splash 24/7)

However, it’s worth noting that Korea Line Company (KLC), a company that had their own spectacular bankruptcy a few years ago in Korea, now has outbid the favorite Hyundai Merchant Marine (HMM) acquiring Hanjin Shipping’s container business; strangely, Korea Line never before had an exposure to or experience with the containership business. Having a previously bankrupt company rehabilitated and growing would seem to be the forces of capitalism at their best:

6. Why is Korea Line buying Hanjin Shipping’s Asia – US container business? (from Seatrade)

However, HMM who was poised to join the 2M Alliance (A.P. Moeller Maersk and MSC), now has been rejected by 2M; for sure, the containership liner industry is in the middle of major re-alignments in a market that keeps looking gloomy:

7. 2M Alliance rejects HMM (from the Korea Times)                                                        

Another week, and another shipping bank has to break some more bad news. NordLB in the news with additional provisions for their shipping loan portfolio:

8. NordLB warns on €1bn loss for year as shipping loans bite (from the Financial Times)

However, the capital markets show signs of thawing for shipping ideas, at least selectively. The Saverys family managed to raise $100 million for their Special Purpose Acquisition Vehicle (SPAC) for acquiring distressed shipping assets (ticker: HUNTU):

9. Hunters with a big warchest for dry bulk shipping (from Seatrade)

Some thoughts about shipping, mostly positive, ‘thankful’ thinking, in the spirit of the season:

10. A Thanksgiving for shipping (from Splash 24/7)

sounion-16-bmk_9055

A majestic sunset. Image credit: Karatzas Images


© 2013 – present 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. 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 website.Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and such information is 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 for the consideration.

S&P, Newbuilding and Demolition Update (February 14th, 2015) – Dry Bulk Market Focus

The dry bulk market has been experiencing multi-year lows; the Baltic Dry Index (BDI) and its component sub-indices for the capesize, panamax bulk, supramax and handysize markets have been setting new lows by the day; the vessels are operating below operating break-even levels, and shipowners are going fast through their cash reserves or drawing down on their lines of credit.

Early in 2014, the dry bulk market was coming after a strong winter and with high hopes for the year; spring of 2014 brought a slowly declining market and by Posidonia 2014, the first signs of concern could be heard of at the beachside parties. The summer was tolerated as seasonally weak time of the year and all hopes were placed for a recovery in the autumn. The market then showed signs of recovery, very strong on occasion for the volatile capesize market, but really nothing to write home about on a sustainable basis. The turn of the year in 2015 brought more deliveries from the shipbuilders and strong growth for the world fleet, and any market recovery has been postponed further into the future.

BDI & Baltic Indices since 2013

Dry Bulk Indices since 2013: False positive? Karatzas Marine Advisors & Co.

As per accompanying graph, the dry bulk indices have been setting new lows, with the BDI settling at 530 points on Friday Feb13rd (in early November 2014, the index was trading just below 1,500 points). The more volatile cape index had a more spectacular decline diving from almost 3,800 points in early November to 311 points in early January before bouncing a bit to 630 on Friday, February 13rd. Indices are only indicative of trends, rarely a scientific representation of the market (i.e. the Baltic indices represent freight rates achieved ignoring the number of vessels bidding for same cargo / idling vessels / vessels looking for cargo / fleet utilization, etc), and the current index levels only indicate a painful market generally.

One can put the blame for the decline for the shipping industries to slowing growth in Japan, Europe and notably in China, increased political uncertainty with Europe and Russia, the strength of the US dollar, etc The main explanation however is that as early as 2010 when the market had started showing signs of life, there had been an ever increasing appetite for newbuildings, whether due to competitive newbuilding pricing, favorable payment structure, the promise of the eco-design, the desire to be the first mover in a market, urgency to lock up newbuilding slots before the competition, etc As per attached graph, from January 2010 to January 2015, the world’s dry bulk fleet grew by 300 million deadweight tons, from 460 to 760, a 65% total increase, or more than 12% annually. Likewise, the number of dry bulk vessels floating grew by 3,000 vessels to 10,300 vessels over the same time frame, for a total increase of 42%. Demand has not grown remotely by half of the supply growth, which may explain the state of the market.

GRAPH_World Dry Bulk Fleet Development

World Dry Bulk Fleet Development (in deadweight and number of vessels)                               Karatzas Marine Advisors & Co.

 

Weakness in the freight market obviously will have repercussions throughout the industry, and it is already affecting many activities in the market, including the sale & purchase market. As one would expect, volume of transactions has declined, as potential buyers do not find it appealing acquiring vessels and right away having to contribute additional funds for operating the vessels. As the market has not found a bottom yet, buyers have gone on a “buyers’ strike” taking the time where asset prices will settle. For many owners it’s a scary market, but there are also well capitalized owners who have the money and they are always for the lookout for good deals, that is top quality tonnage at knocked-down prices. The last thing an owner wants is to overpay in a falling market, understandably. And, it’s a scary market for owners of vessels looking to sell. Chinese built vessels or vessels with less than perfect pedigree are automatically turned down, even at discounted prices; for sellers of good quality tonnage, they have to meet on price and terms the offers of the bottom-feeding buyers…Given that the market has been quiet for more than a month now, often, it’s hard to know where the market is (price discovery, as economists say) for many types of vessels.

An indicative round-up of sales in the last month or so:

In early January, it was reported that the capesize vessel MV „Nordtramp” (2001, 172,000 dwt, Koyo Dock K.K.) was sold to Seanergy in Greece at $17 mil; the vessel is relatively small compared to modern tonnage (ca 182,000 DWT), but she has a perfect pedigree of builder and previous ownership, but the price negotiated is a notable step down from previous transactions. She’s a 14-yr old vessel with approximately 10 years remaining economic life effectively and was sold a few millions above her scrap price; in the previous bottom of the capesize market in 2012, typically older vessels of 17-18 yr old vessels were selling at small premium to scrap; solely based on this transaction, it seems that the present bottom of the market is lower than the previous bottom, not a good sign for the market, if one believes in the art of charting the market. There are no additional sales of capesize tonnage this year, indicative of the dearth of activity in the market. There have been strong rumors that several capesize vessels have been marketed in the demolition market, and approximately a dozen of them have been committed to scrap buyers. Not that we are keeping score, but twenty capesize vessels have been delivered so far this year from shipbuilders, thus, even in a terrible market like at present, there has been a positive net growth effect on the world capesize fleet. There have been hopes that the present weak market will accelerate demolitions and decelerate newbuilding orders, but, having heard this lullaby before, it’s always wise to be skeptical. There also have been hopes that given the better prospects of the tanker market, many capesize (and other dry bulk) newbuilding orders will be converted to tanker orders; this may be a viable option, but it’s neither sure-proof nor inexpensive: just last week, publicly listed Scorpio Bulkers (ticker: SALT) converted three orders of capesize newbuildings to tankers and taking an immediate loss of $22 mil.

MT ANNOULA 1

Panamax Bulker ‘Annoula’ under the Bosporus Bridge (same named vessel as the one reported transacted in this post; NOT the same vessel) Image source: Karatzas Photographie Maritime

The panamax dry bulk market has probably had the distinction of being the weakest of all dry bulk sectors; panamax bulkers barely earn a premium over the smaller supramax vessels, and accordingly, there is no price differentiation between panamax bulkers and supramax vessels of the same age; according to the Baltic Exchange Sale & Purchase Assessment Index (BSPA), a 5-year-old panamax bulker (74,000 DWT) sells at $19.33 mil, while a same aged supramax (56,000 DWT) sells at a slightly higher price of $19.62 mil. On indicative basis, the kamsarmax vessel MV „A MAX” (2011, 84,000 DWT, Hyundai Samho) was sold at auction at $16.55 mil to Greece-based Iolcos Hellenic Maritime Enterprises; the pricing is very weak, but cannot be considered representative of the market as this was an auction sale (typically auctions do not bring a premium), the vessel was at lay-up for more than a year, kamsarmax type vessels are not every buyer’s flavor, and also, this vessel has 235 m LOA (vs a typical 229 m LOA for kamsarmax tonnage). About a month ago, the kamsarmax vessel MV „BLUE MATTERHORN” (2011, 83,500 DWT, Hyundai Samho, 229 m LOA) was sold at $22.5 million. In late December, Scorpio Bulkers sold a prompt resale kamsarmax (N/B Resale Hull No SS-164, 2015, 81,000 DWT, Tsuneishi Zhoushan) at $30.7 mil, a sale believe to have taken place at a loss for the company. The panamax bulker MV „THALIA” (2001, 75,000 DWT, Hitachi Zosen) was sold by Greece-based Neda Maritime at $9.7 million to clients of Shelton Navigation. The panamax bulker MV „MARITIME TABONEO” (2004, 76,000 DWT, Imabari Shipbuilding) was sold at $10.8 mil by Shoei Kisen Kaisha to Cyprus Maritime. The older bulkers MV „ANNOULA” (1997, 70,500 DWT, Sanoyas) was sold at $6.1 million by Alpha Tankers & Freighters in Greece to Chinese buyers, and MV „THEOPHYLAKTOS” (1995, 72,000 DWT, Daewoo) by General Maritime Enterprises to Chinese buyers at $5.3 million.

The supramax dry bulk market has been exceptionally inactive with five transactions reported year-to-date; the transactions typically refer to vintage tonnage, vessels built in the previous century. MV „VERDI” (2007, 58,500 DWT, Tsuneishi Zhoushan) was sold in January at $15 mil, while the older MV „BIKAN” (2001, 52,000 DWT, Sanoyas) was sold at $9.7 mil.

The handysize market is usually more active as vessels cost less money and there is a longer tail of ownership worldwide; there have been approximately twenty transactions taking place so far this year, with most of the vessels being older or being built in the last century; noteworthy transactions have been the sale of MV „EGS TIDE” (2011, 36,000 DWT, Huyndai Mipo) at $16.85 million. The slightly older MV „CRESCENT HARBOUR” (2007, 32,000 DWT, Kanda S.B. Co) at $10.7 million. Same aged MV „DIAMOND OCEAN” (2007, 32,000 DWT, Hakodate Dock) was sold at $11.50 million by Daiichi Chuo.

All in all, the sale & purchase market for dry bulk vessels has been quiet, which is challenging for shipbrokers in markets specializing in the dry bulk markets; also, dropping asset prices and lack of market comparables make vessel valuations challenging; not to mention that shipping loans still holding covenants of vessel valuations and collateral are getting close to call.

The demolition market is not as active as the weak freight market would imply, but still much more liquid than other times in 2014. The demolition market has dropped since the beginning of the year, grossly dropping from $500/ldt to $400/ldt, or even slightly lower. This is a sizeable drop, precipitated by speculative transactions taking place in late last year for buyers of scrap vessels committing to vessels and prices and then having to re-negotiate lower when local conditions deteriorated, thus resulting in defaulted transactions pulling the market lower. The strength of the US Dollar (vessels are sold in US$ but local buyers have to price locally) and weak growth locally (reflecting lower steel plate pricing) have also contributed to the drop of the market as well. It’s to be seen how the demolition market will progress throughout the year; there is hope that demolition prices will be strong over the long term, but in the immediate term, it seems there is little steam in this market.

The dry bulk market will be an interesting market to watch in the coming years….


© 2013-2015 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. 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 website.Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and such information is 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 for the consideration.

S&P, Newbuilding and Demolition Update (December 24th, 2014) – Dry Bulk Market Focus

Since our last report at the end of September, the overall dry bulk market has dropped by more than 25%; however, when the decline is seen from the interim peak in early of November at 1,484 points to the present reading of 788 points, for the BDI, the index been cut in half (Graph 1).

Baltic Indices since SEP2014_Graph 1

Graph 1: Baltic Dry Indices since September 1st, 2014; (data source: The Baltic Exchange)

The capesize market as always has been the most volatile component of the BDI index, and it has been on a free fall from the top of 3,781 points on Nov 4th to 474 points on Christmas’ Eve, equating to less than $5,000 pd in terms of freight rates. Looking back, it was in late fall 2013 when the capesize index was trading at comparably high levels (as high as 4,500 points on an occasion), but 2014 has not been a good year for the dry bulk market overall. The performance of the dry bulk market in 2014 got many market players by surprise, as the consensus thinking had been that the market had found bottom in 2011 and 2012, and since then the trend was expected to be upwardly leading, only the degree of the positively sloping line was a matter of debate. The performance of the dry bulk market has been having a major impact on market activity, both directly and indirectly. For starters, cash flows have been at or below operating levels, thus dry bulk owners have been bleeding cash from running their dry bulk vessels, which obviously is not a good result. Further, given that dry bulk vessel ownership is much wider-ly spread (than let’s say tanker vessel ownership), the pain of negative cash flows is widely felt, affecting many, many owners in absolute terms, financially; and when the cash register of a great deal of owners bleeds cash collectively, momentum and attitude are negatively impacted, thus turning the mood of the overall market sour. Again, the consensus thinking has been that 2014 ought to be a good year and many players had placed accordingly ‘long bets’, thus the negative performance has an amplifying effect on a wide range of prospects from newbuilding orders placed on the assumption of an asset play game (surprisingly, no financing in place for many of these speculative orders) to companies having prepared for IPOs and access to the capital markets, to private equity (PE) funds expecting on building a positive track record with an eye to a quick and profitable exit strategy.

Baltic Indices since JAN2013_Graph 2

Graph 2: Baltic Dry Indices since January 2013; (data source: The Baltic Exchange)

The dry bulk index started the year in an active way with the tailwinds of last year, and until the middle of spring 2014 (Graph 2), the prospects were looking up; by partying time at Posidonia in June in Greece, the dry bulk market was more than a couple of months in decline; however, owners having built cash reserves during a strong 2013, were holding high hopes and were thinking of bridging the seasonally weak early summer and start trading strongly at the end of the summer. The summer came and left, the fall came and left, and the year came and left, and still no rally to be seen. No predominant cause for the failure to appear for the market rally, but pointers abound: a) for once, world economic growth prospects have been getting revised lower, from the Japanese economy entering recession and the European economy flirting with one too, b) the Chinese economy downshifting seriously on the back of calls for clean air (i.e. burning less coal) and cleaner business policies (i.e. going hard after corruption and self-dealing) and lowering inventories, c) new or stricter export requirements of commodities by several countries (grains in Argentina, mineral export duties in Jakarta) and neutral shipping trends despite a bumper crop harvest in the US, while d) vessel supply kept increasing (approximately 620 dry bulk vessels were delivered in 2014 y-t-d, 320 were scrapped in the same period for a net increase of more than 3% on a world fleet of about 10,000 dry bulk vessels at the beginning of the year).

Despite the fact that hope springs eternal in shipping, dry bulk asset prices has been shifting lower as well. Financing is still hard to find for most shipowners and with freight rates low, potential buyers want to see compelling opportunities to get enticed to open their wallet. In our business practice, we often see buyers’ typical reaction to proposed sale candidate vessels: “the market is at $X mil as per ‘last done’ for this vessel and we would never buy at market, but we would consider offering at market less 5-10%”, which approach has been chipping lower on prices from previously done price levels. While earlier in the year prices were moving in tandem for modern and older dry bulk vessels (usually, independent and smaller owners buy ‘older’ vessels and shipowners with access to the capital market prefer modern tonnage, as a rule of thumb), as of recent, there is a bifurcation in the market as modern vessels have been holding better their prices while ‘older’ vessels have seen a more pronounced drop in asset pricing. It’s hard to pinpoint the widening of the gap between older and modern tonnage, but access to funding and capital markets (where also fees are much higher, and also where there is the need of ‘deal pressure’ and also the need to ‘feed the beast’) may partially explain the price differential. A partial explanation may also be attributed to the strength of the US Dollar (and / or the weakness of the Japanese Yen) which have made the sale of Japanese-controlled vessels more palatable – and, indeed, we have seen more Japanese controlled tonnage for sale in the secondary market in the last few months.

In the capesize market, we have recently seen the sale by Daichi Chuo of MV ‘First Eagle’ (170,000 dwt, 2010, Imabari Shipbuilding) at approximately $41 million to Chinese buyers. In middle November, Daiichi Chuo again disposed of another larger-sized bulker MV ‘First Ibis’ (180,000 dwt, 201, Universal S.B.) at $45 mil to same buyers, clearly indicating that the price of ‘First Eagle’ is a meaning step-down in pricing, after adjusting for size. As a matter of comparison, Daiichi Chuo again sold another capesize vessel in April this year, MV ‘Shanganfirst Era’ (181,000 dwt, Koyo Dock K.K, 2010) at approximately $54 mil to Greek buyers (Golden Union), which makes clear the asset pricing trend between spring and fall this year. Just recently, publicly listed Diana Shipping announced the acquisition of a 2015-built vessel at $50 mil (Hull No BC18.0-51, 180,000 dwt, Beihai Shipyard, 2015); interestingly, Diana also announced this week in a press release the chartering of one of their 2010-built capesize vessels MV ‘New York’ (177,000 dwt, SWS, 2010) to Clearlake for a period of 14-18 months at $12,850 pd less 5% commissions – it would seem that there is still a big disconnect between asset pricing and freight market, unless there is strong conviction for a market recovery. Back in November, Alpha Tankers and Freighters of Greece acquired from Lauritzen Bulkers the vessel MV ‘Cassiopeia Bulker’ (180,000 dwt, Hanjin H.I., 2011) at approximately $42 mil, while at around the same time financially oriented CarVal Investors acquired MV ‘Mineral Manila’ (180,000 dwt, HHIC-Phil., 2011) at $43 million from Bocimar. As an indication of the present market bifurcation, Turkish interests acquired MV ‘Pacific Triangle’ (185,000 dwt, Samsung, 2000) at close to $17 mil, approximately $5 mil premium over scrap price for a vessel likely to have 5+ years remaining economic life.

The panamax dry bulk market has been experiencing a tough cycle, with very weak rates and many existential questions of the optimal size of a ‘panamax’ vessel in our modern world. In any event, just this week, publicly listed Scorpio Bulkers announced the sale of 81,000 dwt vessel at $30.5 mil to Vita Management in Greece (Hull No 164, Tsuneishi Zhoushan, 2015) – incidentally, this week also Scorpio Bulkers announced the scuttling of a six-vessel capesize order (for the newbuilding orders to be converted for coated aframaxes to be sold to sistership company Scorpio Tankers, another implicit sign of the sorry state of the dry bulk market). Earlier this year, Mitsubishi Corp. sold three post-panamax vessels to Golden Union in Greece at prices reported at approximately $34 mil (Hull No 1623 / MV ‘King Santos’ / MV ‘King Seattle’ 81,000 dwt, STX SB (Jinhae), 2014), making clear the asset price trend since the spring of this year for this asset class (appr. 10% decline). K-Line sold the panamax bulker MV ‘Opal Stream’ (77,000 dwt, Oshima S.B., 2003) at $13.5 mil to BulkSeas, while Daiichi Chuo – still an active seller – sold the vessel MV ‘Mulberry Wilton’ (77,000 dwt, Tsuneishi Zosen, 2004) at $14.5 mil to Greek buyers. As a matter of market trend, back in February 2014, Euroseas acquired the Japanese (Nisshin Shipg. Co.) bulker MV ‘Million Trader II’ at $22.0 mil (77,000 dwt, Tsuneishi Zosen, 2004).

MV GLOBAL SUCCESS 3

Japanese-built and -owned ultramax bulker ‘Global Success’ in Greek waters (Port of Piraeus) in November 2014… Image source: http://www.basil-karatzas.com

In the handymax / supramax / ultramax markets, the prospects have not been much rosier; there has been a great deal of concern about the outstanding orderbook in the sector, although the economics at present are better pari passu to other asset classes: the freight revenue line is as bad as for bigger vessels but at least the costs basis is of a smaller scale. Crown Shipping sold recently to Ocean Agencies two prompt resales (Hull Nos ZJB-401/-402, 63,000 dwt, Sinopacific, Zhejiang, 2015) at $27 mil, each. In late spring, Da Sin Shipping sold the memorably-named MV ‘Mandarin Wisdom’ (63,500 dwt, Jiangsu Hantong H.I., 2014) at close to $29 mil to Erasmus Investments; at the beginning of 2014, in January, Greek interests acquired MV ‘Dietrich Oldendorff’ (63,500 dwt, Sinopacific Dayang, 2013) at $32 mil; the down-slopping asset trend is obvious since the beginning of the year. Again, Daiichi Chuo has sold MV ‘Sansho’ (55,800 dwt, I.H.I., 2012) at $24.5 mil to European interests; similarly, Japanese-based Noma Kaium sold MV ‘Ruby Halo’ (58,000 dwt, Tsuneishi Cebu, 2011) to First Steamship for $27 mil. For ‘older’ vessels in this sector, K-Line again has recently been active with the sale of MV ‘Mokara Colossus’ (55,800 dwt, Kawasaki S.B., 2006) at $14.5 mil to (again) BulkSeas; British Marine sold MV ‘Gwendolen’ (50,250 dwt, Mitsui Shipbuilding, 2004) at the respectable $14 mil to Gurita Lintas; similarly, LT Ugland Bulk sold MV ‘Emily Manx’ (47,000 dwt, Shin Kurushima, 2001) at $10.25 mil, almost as much as Orient Marine Co. fetched for their MV ‘Pax Phoenix’ (50,250 dwt, Mitsui Shipbuilding, 2001) to Bangladeshi interests. Based on these recent transactions reported, one notices the nature of the sellers (Japanese, predominantly) and the shipbuilding origin of the vessels (Japanese, predominantly again – as there is little tolerance in this market for low quality tonnage); the nomenclature of the sellers re-affirms our earlier comment on FX rates and asset market drivers.

In the handysize market, prominent transactions include the sale of evocatively named MV ‘Brilliant Moira’ (28,500 dwt, I-S Shipyard, 2014) by Aono Kaiun K.K to Greek interests at $18.10 million, and the sale of MV ‘Hudson Bay’ (29,500 dwt, Shikoku Dock, 2011) at $18.4 mil to Dalex Shipping in Greece by Mitsui Warehouse; same sellers have disposed of older vessel MV ‘Durban Bulker’ (32,500 dwt, Kanda S.B., 2005) at $13.5 mil to Taylor Maritime. Phoenix Shipping & Trading has sold the vessel MV ‘Porto Maina’ (18,700 dwt, Yamanishi Zosen, 2008) at $8 mil to European interests. Again, Japanese-originating names dominate sellers and shipbuilders nomenclature.

Volume of transactions overall has been decent and, overall, it’s only marginally lower than 2013 when it was a better market overall. As expected, the beginning of 2014 was more active in terms of transactions, and with the passing of time and asset price declining, volume has been tapering off as well. While overall since 2011 the dry bulk freight market has been improving (Graph 3), the market has been moving within a ‘trading range’, between 1,000 and 2,000 points for the BDI – with the Cape market more ‘expressive’ and reactive, primarily to rhythms from China.

Baltic Indices since JAN2011_Graph 3

Graph 3: Baltic Dry Indices since January 2011 (data source: The Baltic Exchange)

All eyes are of course on 2015 and many wonder whether the BDI will manage to break out of the ‘trading range’. But again, many wonder whether any of the presents the Three Maghi (Three Wise Men) brought were a ‘market catalyst’ for a better market… gold, frankincense and myrrh don’t seem to be good enough…

Merry Christmas!


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