Dry Bulk Sale & Purchase (S&P) Update

Posted on June 12, 2015 by Karatzas Marine Advisors & Co.

The Baltic Dry Index (BDI) established a 30yr low point in February this year; actually the lowest reading of the index ever. Since then, the market has been bouncing along the bottom with a very anemic improvement to show since then. There are concerns that the industry has entered a long-term phase of malaise with chronic oversupply of tonnage; certain trends point to such direction such as massive orders by cargo interests and end users building up their own fleets (i.e. Cosco, Vale, etc) that will make life for independent dry bulk owners difficult, or at the very least ‘shave the market peaks’. China is done for now with their exponential growth of their market as they try to position their economy towards services and focus on a more equal distribution of wealth that can assure social peace. There also have been structural shifts in the markets associated with shipping, such as replacement of coal with natural gas for electricity and power generation; at present the trend against coal is so bad that it seems coal is becoming a ‘four letter word’ as investors, institutions and sovereign funds are competing for the fastest exit from the industry; for sure, natural gas will need also shipping but not on dry bulk vessels; and the coal trade as almost as big as iron ore at almost 1.2 bln tonnes of coal expected to be transported this year vs. 1.5 bln tonnes of iron ore, based on data by Karatzas Marine Advisors & Co.

Baltic Dry Index: not a day at the beach, regrettably! (Karatzas Marine Advisors & Co.)

Most institutional investors and shipping banks have turned their backs on the dry bulk market, at least for now; thus, there is extremely limited liquidity, which further compounds the downward pressure on dry bulk asset pricing that are inflicted by the weak freight market. The main sources of financing for dry bulk projects today are from the capital markets (selectively available and often at a substantial discount; $SALT’s secondary offering at 30% discount is a clear example of a fallen angel) or with sweat equity and own equity. Independent shipowners and sweat equity have their own capital limitations and likely to opt for older tonnage at rock-bottom pricing, mostly looking for vessels older than 15yrs of age at about scrap pricing; if one has access to cargo or charterers or niche markets, buying a vintage bulker at scrap is not a bad investment proposition: for a few million dollars (small amounts in absolute terms that can be afforded by individual investors) and with minimal capital at risk (premium over scrap), if a buyer can squeeze a few year’s of economic life out of cigarette-butt (think of Benn Graham and Warren Buffett), what can go wrong? And, if the market unexpectedly recovers, these buyers will have hit the jackpot. The access to capital accurately reflects the market dynamics and asset pricing, as big, cash-rich, prime buyers go for beaten-down prices of modern, top quality tonnage, while small, cash-rich owners with access to cargo go for bottom-fishing; thus, there is relative demand from buyers on the opposing ends of the spectrum while demand is sagging for middle-aged vessels; for those involved with volatility analysis and option trading, what’s happening in the dry bulk market reminds of a so-called ‘volatility smile’.

Activity in the dry bulk market is ebbing and flowing, but mostly ebbing as most buyers are taking their sweet time before make any decisions, to buy at all, and if so, at what price. Since asset prices are low and most of the market really is focused on older and cheap tonnage, sale & purchase commissions often are laughable, putting pressure on many smaller brokerage houses.

In the capesize market, Scorpio Bulkers (ticker: SALT) has been continuing their selective divestment of assets in an effort to fill the funding gap for their massive newbuilding program (along with their discounted pricing of secondary offerings as announced earlier this week for 133,000,000 shares of common stock at $1.50 per share; the stock was trading well above $2.20/share at the time of the announcement). In early April, Scorpio has sold three units of capesize bulkers at $44 mil each (2015/2016 deliveries of 180,000 dwt tonnage at Daewoo-Mangalia, MV ‘SBI Churchill’, MV ‘SBI Perfecto’ and MV ‘SBI Presidente’) while this week it has been reported that additional sales took place at $41 mil each, indicating an 8% drop in asset pricing in approximately two months (MV ‘SBI Corona’, MV ‘SBI Estupendo’ and MV ‘SBI Diadema’, 180,000 dwt, 2016, Shanghai Waigaoqiao/China). Approximately one month ago, the still modern cape MV ‘Blue Everest’ (180,000 dwt, 2010, Daehan) was sold at $27 mil, and the older MV ‘Jiang Jun Shan’ (177,000 dwt, 2006, Namura) was sold at $18.2 million. Most market reports have a standardized 5yr-old cape at $30 mil ($29.2 mil as per the Baltic Exchange Sale & Purchase Assessment Index (BSPA)), while just one year ago, such number was pushing the $50 mil mark ($49.08 mil as per BSPA); this is a monumental illustration is value destruction, where $20 mil per vessel has evaporated into thin air, a 40% drop. Few people could have envisioned such a market decline (at least not us, we have to confess), but for professional asset managers, institutional investors, portfolio managers, private equity funds and shipowners on roadshows pounding the table about the market getting this so wrong is a humbling example to watch and wonder.

In the panamax market, MV ‘Navios Esperanza’ (75,000 dwt, Universal S.B., 2007) was sold to $14 mil with her intermediate survey due. Interestingly, MV ‘F.D. Jacques Fraubart’ (76,500 dwt, Imabari S.B. Marugame, 2007) was sold less than six months ago at $19 mil, indicating the magnitude of the asset declines in this sector; presuming appr. $1 mil for the cost of the intermediate survey, this sale represents more than 25% decline in less than six months. The sale of the MV ‘Navios Esperanza’ however is in line with present market given than two weeks ago MV ‘Lowlands Queen’ (76,500 dwt, Imabari S.B. Marugame, 2008) was sold at $15 mil. Decade-old tonnage in this segment has just been decimated as recently the Japanese-built MV ‘Million Trader’ (76,500 dwt, Tsuneishi Zosen, 2004) was sold for appr. $9.5 mil; given that the salvage value of the vessel is $4.5 mil in the present market, she’s Japanese-built and her remaining economic life is more than ten years (fifteen actually remaining years as far design life is concerned), it is hard to see how this can be a bad investment, negative cash flows in the immediate future notwithstanding. And, the market is so terrible for pricing panamax bulkers of this vintage that actually the sale of MV ‘Million Trader I’ (76,000 dwt, Tsuneishi Zosen, 2006) at $12 mil in early May was actually considered at ‘overpriced’ territory by one prospect buyer. Similar and tonnage and pricing, MV ‘Medi Sinagpore’ (75,500 dwt, Universal S.B., 2006) was sold for $12.8 mil while the slightly older MV ‘Rose Atlantic’ (75,500 dwt, Sanoyas, 2005) at $11.0 mil. As a matter of comparison, this time last year, the consensus estimate for a 5yr old panamax bulkers was standing at $26 mil ($26.9 mil as per BSPA index), while now the market stands at appr. $17 mil ($16.4 mil as per BSPA), representing an impressive 40% drop in asset prices.

In the ultramax / supramax market, Norden A/S has disposed of two 60,000 dwt Ultramax newbuildings at Oshima Shipbuilding for delivery in Q4-2015 and Q1-2016 for a price in the region of $25m each (N/B RESALE HULL 10781 / 10782, Oshima Shipbuilding, 2015/2016); EastMed of Greece has been reported as buyers. Similarly sized tonnage but older, MV ‘Nord Liberty’ (58,750 dwt, Tsuneishi Cebu, 2008, 4x30T cranes) was sold to Sea World Management for a price region $12.5 mil. The lightly newer MV ‘Hudson Trader II’ less than a month ago (58,00 dwt, Tsuneishi Zhoushan, 2009) had achieved a more respectable $14.2 mil. From Nisshin Shpg.Co.Ltd. Again, as a matter of comparison, BSPA for a modern surpramax was standing at $25.8 mil this time last year and only at $15.46 mil at present; as painful as it has been, supramaxes / ultramaxes / handymaxes have been another great way of value destruction since last year.

Wishing that all waters in shipping were so clear to read! (Image source: Karatzas Photographie Maritime)

While dry bulk asset prices have dropped substantially over the last year, the consensus is that is the ‘glass is half empty’, still. There many reasons to think so, given still the outstanding orderbook to be delivered, excess shipbuilding capacity, low interest rates and excess liquidity for certain markets, mentions of additional credit lines for export credit from China, and lots and lots of dry powder from institutional investors that can move the market at any given point. On the other hand, as we outlined in a recent post, smart money are getting a second look on certain types of vessels in the dry bulk market. Prices are low enough to be tempting, despite negative cash flows in the near term that will have to be ‘added’ to any purchase price; however, delays in deliveries are negotiated each day from buyers, newbuilding orders have stopped – to the delight and surprise of many a shipowner, charterers have gone on a limp to stay away from the period market and delay as much as possible their chartering requirements. There are some smart money that have start thinking that most of the bad news have been priced in the market and, at least in the near future, any surprises likely to have a positive effect on the market. Maybe it’s time to start seeing the dry bulk glass as half-full.

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S&P, Newbuilding and Demolition Update (March 8th, 2015) – Tanker Market Focus

Posted on March 9, 2015 by Karatzas Marine Advisors & Co.

Unlike the dry bulk market which is experiencing a multi-cycle structural weakness, the tanker market has been behaving much more enthusiastically, at least for time being. Tanker vessels have been trading above operating earnings since early 2014, and on occasion, for spot rates, earnings have been eye-popping – such as when in January 2015 rates for VLCCs flirted with the $100,000 pd mark. The attached graph shows one-year time-charter rates for the major segments in the tanker market, including the capesize market, for purposes of illustration and comparing tanker and dry bulker markets; and an obvious reminder, capesize vessels are the largest commoditized bulker vessels in the business.

Crude oil pricing has grossly halved in the last year, and OPEC’s (read, Saudi Arabia’s) decision in November in Vienna to go after market share rather than margins has ensured that at least in the short term, oil will be cheap and likely will be trading heavily. Cheaper crude oil pricing has the potential of contango (buy now in the physical market, store – ideally on tankers – and sell in the futures market at a higher price); cheap oil pricing has the prospect of increasing demand (there are already signs that sales of SUVs and trucks are on the up in the USA) that eventually will mean more movement of cargoes; cheap crude oil has been encouraging build up of strategic petroleum reserves, and there are indications that China is going strong at building up theirs under the weakness of the pricing of the commodity. A brutal winter in the USA has stimulated the use of gasoline which has affected positively the petroleum products trade in the Atlantic. Despite the shutting down of many drills in the US for shale oil production (down by 39% from 1609 to 986 operating drilling rigs between October and end of February, according to Baker Hughes), the US maintains sky high inventories of WTI crude oil (for the week ended on February 27^th, US crude oil inventories showed a massive weekly build-up of 10.3 million barrels to a total of 444.4 million barrels); if not for the shale oil production, the seasonal impact of the inhumane winter would have a much pronounced impact on the crude oil tanker market.

The strength of the tanker freight market has stimulated increased dealing in the sale & purchase market, but mostly it has encouraged several ‘corporate’ transactions whether on the M&A front (Euronav acquiring the Maersk VLCC fleet, the ‘merger’ of the Navig8 VLCC fleet with General Maritime to create Gener8, DHT’s acquisition of Samco Shipholding’s VLCC fleet) and on the IPO front (earlier this year Euronav was successful finally obtaining a public listing in the US). While more M&A in the tanker market may be expected, IPOs can be a trickier market, as investor appetite can gyrate faster than the fortunes for freight for big tankers. There is increased interest to see how a few of PE-sponsored tanker shipping companies will proceed in this environment, which while promising, it does not allow for these companies to float at a profit – indicatively, both Diamond S. sponsored by Wilbur Ross and Principal Maritime sponsored by Apollo – have relatively high cost basis and a floating at NAV will result in realizing losses, at least in the short term. Investor interest, and also charterer interest, in the tanker market – despite the market’s strength – have been of concern to many a shipowner. For instance, while the spot market is very respectable, there is no period market – in general – as charterers prefer to pay up spot prices now but not willing to commit for a two-year charter. This observation does not bode well for the future of the market, when charterers do not have the conviction to commit for two years of rates – in hot markets or markets expected to break out, charterers want to act and cap their exposure.

Likewise, the activity in the secondary market has not been as active as the freight market would suggest; of course, banks do not lend easily these days, thus this is a dislocation affecting overall activity in the market. And the freight market is not as strong to support modern tonnage for operating expenses (OpEx) and a fully amortizing loans; by revisiting out graph at the top of the page, one-year TC for a modern VLCC is appr. $45,000 pd; given a nominal price of a VLCC tanker of approx. $100 mil. and approx. $9,000 pd OpEx, the earnings barely cover a fully amortizing ship mortgage. And, sale and purchase activity has overall been anemic – despite the strength of the market; and it’s clear that the focus of the transactions has been concentrated on modern vessels [typically vessels newer than five years old – suitable for publicly traded companies that are ‘hot’ for deals in this market and pay with equity (thus low leverage / more flexibility with cash flows), and vessels older than twelve years old at often prices at a multiple of scrap – by Asian buyers or buyers with access to cargoes]; these typically are not signs of a very liquid, solid market that has consolidated and about to break out; not to mention, that now that the freight market has improved, there have been packages of very modern tanker tonnage discreetly mentioned for sale, primarily from ‘OK’ owners or ‘OK’ / Chinese yards who are testing the market to offload positions at a small loss or at a break-even; once again, an indication of little faith in the prospects of the market, albeit from ‘weak hands’ or ‘OK’ quality tonnage with little prospects to be much sought after in the future.

On indicative purposes, since the beginning of the year, the following representative transactions have taken place: in the VLCC market, MT „Patris” (298,500 DWT, Daewoo, 2000) was sold by Chandris (Hellas) in the UK to clients for Modec for FPSO conversion at the relatively very strong price of $38 million; similar vessel, MT „GC Haiku” (299,000 DWT, Hitachi Zosen, 2000) was sold at $31 million by GC Tankers to New Shipping; the three-year newer MT „DS Voyager” (309,000 DWT, Samsung HI, 2003) was sold by DS Tankers to NG Moundreas in Greece at $42 million.

In the Suezmax tanker market, in 2015 so far, there has been only the sale of two sistership vessels MT „Chapter Genta” (156,000 DWT, Jiangsu Rongsheng, 2010) and MT „Roxen Star” (156,000 DWT, Jiangsu Rongsheng, 2009) at $96 mil from Roxen Shipping to interests controlled by Frontline / Fredriksen Group.

Likewise in the aframax tankers, Teekay Offshore has disposed of the shuttle tanker MT „Navion Svenita” (106,500 DWT, Koyo Dock, 1997) at an undisclosed price; MT „Sark” (113,000 DWT, New Times SB, 2009) has been sold by Sark Shipping to EA Technique at $40 million.

LR1 Products Tanker MT ‘Compass’ and cruiseship MV ‘Queen Mary 2’ in the New York Harbor in August 2014. Image source: Karatzas Photographie Maritime

In the LR1 tanker market, Prime Marine of Greece has sold four LR1 tankers to Hafnia Tankers in Denmark at an undisclosed consideration; the vessels were MT „Arctic Char” (75,000 DWT, Brodosplit, 2010) and the sisterships MT „Karei”, MT „Kihada” and MT „Maguro” (74,250 DWT, STX SC (Jinhue) 2010).

The MR2 product tanker market has been more active with the sale of sistership tankers MT „Caletta” and MT „Calafuria” (51,500 DWT, Hyundai Mipo, 2011 / 2010, respectively) by G. D’Alesio in Italy to interests at $30 mil each. For pumproom design vessels, Minerva Marine of Greece acquired MT „Nord Obtainer” (47,500 DWT, Onomichi Dockyard, 2008) at $19.50 mil, while similar tonnage vessel was sold to clients of Benetech in Greece at the comparatively high price of $23 mil for MT „Nord Star” (45,900 DWT, Shin Kurushima, 2009) from Saito Kisen. MT „Hellas Symphony” (46,200 DWT, Hyundai Heavy, 2000) was sold by clients of Latsco in the UK at $10.5 million, while similar tonnage MT „Tosca” (47,500 DWT, Brod. Trogir, 2004) was sold at $18 million. The 1997-built tanker MT „Midnight Sun” (45,000 DWT, Minami Nippon, 1997) was sold from Mitsui OSK Lines in Japan at $8.0 million to Far Eastern interests.

There has been an interesting sale of an MR1 tanker, MT „HC Elida” (37,500 DWT, Hyundai, 2001) at $11.5 million by Marlink Shif. in Germany to Far Eastern interests, showing relative strength for this under-the-radar tanker segment.

There have also been a few transactions in the usually quiet market for stainless steel tankers, such as the sale of MT „HF Pioneer” (19,900 DWT, Fukuoka SB, 2010) by Fairfield Chemical in the US to clients of Heung-A at $25.25 million. The also stainless steel tanker MT „Fairchem Colt” (19,900 DWT, Usuki Zosensho, 2005) by Tanba Kisen to S. Korean interests at $19 million. The older stainless steel tanker MT „ST Dawn” (19,900 DWT, Shin Kurushima, 2000) was sold by Stalwart Tankers at $14.5 mil to clients of TPL Shipping. The IMO II/III epoxy-coated tanker MT „Sichem Onomichi” (13,000 DWT, Sekwang, 2008) was sold at $11 million by Hisafuku Kisen K.K to S. Korean interests.

Once again, despite the fairly encouraging freight market, rather few transactions have taken place in the secondary market for tankers, and mostly for tonnage either newer than five years or older than twelve years.

And keeping accounts for newbuildings, eleven VLCC tankers have been ordered in 2015, twelve orders for Suezmax tankers and fifteen orders for Aframax tankers, and four MR tankers have been placed. All in all, TWO WHOLE VLCCs were scrapped so far this year, and zero scrappings in the rest of the tanker segments mentioned in this report, for a NET GROWTH of the world tanker fleet. It seems that staying away from NBs and more orders for tonnage is hard to do… And, a quick remark on the demolition market that has dropped by 20-25% since the beginning of the year, given the weakness of the dry bulk market and plenty of vessels offered, thus driving supply up and prices lower, admittedly from speculative rates well in excess of $500/ldt at the beginning of this year.

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

Posted on December 25, 2014 by Karatzas Marine Advisors & Co.

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).

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 4^th 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.

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).

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.

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!

S&P, Newbuilding and Demolition Update (August 29th, 2014) – Tanker Market Focus

Posted on August 29, 2014 by Karatzas Marine Advisors & Co.

Since our last report, apologizing-ly more infrequent than we would prefer, the tanker market has been holding fairly well and better in comparison to the dry bulk market. Tanker freight rates have been holding at respectable levels for most of the time year to date, and above operating break-even for most of the sectors and most of the time. Clean product tankers seem to be the weakest link with freight rates well below $10,000 pd (the tremendous ordering and ‘me too’ mentality has finally caught up with the market); on the other hand, gas carriers – especially for long range tonnage, freight rates have been setting new highs on a casual basis – as high as $100,000 pd for certain vessels, on the back of increased trade, increased production and steady demand and constrained tonnage availability, at least at the moment. Mainstream crude tanker vessels have been holding their values surprisingly well, especially for modern tonnage.

China has been increasingly dependent on more crude oil imports: while monthly Chinese crude imports fluctuate based on inventory buildups and refinery expansion, Chinese crude oil imports effectively increased from 4.3 mbpd in October 2013 to 6.1 mbpd in December 2013 to an all-time-high of 6.8 mbpd in April 2014, about 8% growth y/y from 2013Q1. In general, for 2014H1, crude oil tanker rates are at least double the levels from a year ago, with VLCCs and Aframax tankers averaging about $22,000 pd while Suezmax tankers averaging about $25,000 pd in the spot market. Still, these numbers are not terribly healthy and cannot support the cost base of many a modern tanker with high acquisition prices (a VLCC acquired at $100 mil, would need to see close to $50,000 pd in order to support an amortizing mortgage and allow for a single-digit return to investors); again, when these tankers were not making enough money this time last year to pay crewing and insurance, any improvement is godsend. While there are still numerous crude tanker newbuildings on order, in general, the disappointment in the market has spoiled – so far – the appetite for massive orders, and thus the rate of new orders is diminishing at a time when ton mile and demand seems to be holding steady or increasing. The second half of a year is usually more active in movement of crude oil cargoes, thus seasonality is in favor of the market. And looking longer term, crude oil production is projected to increased from about 90 million barrels per diem (mbpd) to 100 mbpd by decade’s end, it has been as reassuring as it can get, given than a couple of years ago nil or ‘negative growth’ was the base-case scenario.

VLCC Tanker MT„Front Comanche”

While in late July 2014, Frontline Ltd (ticker: FRO) opted to compensate Ship Finance International (ticker; SFL) $58.8 million for the early termination of the charter for three VLCCs (MT „Front Opalia”, MT ‘Front Commerce” and MT “Front Comanche” – all built in Japan in 1999) rather than spend more than $10 mil to pass mandatory special survey and drydock (SSDD) for the vessels, and eventually sell the vessels to Sinokor for $23.5 mil per vessel (a slight premium over their scrap value), a still Fredriksen-affiliated tanker company – Independent Tankers Corporation Limited (ticker: VLCCF) has sold the one-year-older VLCC tanker MT „Ulriken” (1998, 310,000 DWT, Samsung Heavy) at $26 million, admittedly a very strong price for her age; the vessel, however, has valid certificates and good survey position till December 2018. Similarly aged VLCC tanker MT „Neptune Glory” (1998, 299,000 DWT, Daewoo) has been sold at a softer price of $24 mil, with class certificates and survey position good till April 2018; this sale allegedly should have been at premium pricing given the ‘subjects’ to conversion to offshore asset for Nigerian tender. Although survey position has been getting to be a crucial factor for pricing crude tanker vessels around their 3^rd Special Survey (15^th anniversary from shipbuilder), pricing seems to be vessel and transaction specific, making vessel valuations a rather customized exercise rather then the output of an algorithm. VLCC tanker MT „DS Victory” (delivered in ‘this part of the century’ 2001, 299,000 DWT, Daewoo) was sold to Greek buyers (NGM Energy / Moundreas) at $33.5 million; vessels built after 2000 are priced and depreciated differently than vessels built prior to the millennium, but the MT „DS Victory” seems to be a very good vessel in terms of cargo capacities, specifications and fuel consumption.

Suezmax Tanker MT „Cygnus Voyager”

In the Suezmax tanker market, Chevron Shipping has exercised the option to acquire three Suezmax tankers already under their long-term bareboat charter for an undisclosed remuneration; vessels were owned by Independent Tankers Corporation Limited (ticker: VLCCF) and were MT „Cygnus Voyager” (1993, 157,000 DWT, IHI (Japan)), MT „Sirius Voyager” (156,500 DWT, 1994, Ishibras (Brazil)) and MT „Altair Voyager” (135,000 DWT, 1993, Ishibras (Brazil)); these are 20+ year old crude oil tankers and it’s extremely interesting seeing a major-oil-company-affiliated shipping company ‘coming close’ to such old tonnage, whether chartering or ownership. It’s even more interesting seeing Brazilian-built tankers acquired by a major-oil-affiliated shipping company given than Brazilian-built vessel do not exactly enjoy high reputational respect, primarily in terms of quality of steel plate. Recent Suezmax tanker sales have been the sale of MT „Huelva Spirit” (160,000 DWT, 2001, Daewoo) to Middle-eastern buyers at excess of $18 mil, and the very strong price of MT „Cape Balder” (160,000 DWT, 2000, Hyundai Heavy) from German KG-house for conversion at a very strong pricing in excess of $18 mil. A very interesting sale at the very strong price of $65 mil has been reported in early August of MT „Cap Isabella” (158,000 DWT, 2013, Samsung Heavy); publicly listed Euronav, as the bareboat charterer of the vessel with profit sharing in a potential sale, has confirmed the sale in a press release and their book profit of $4.3 mil but not the actual sale price; as buyer for the vessel has been reported Polembros Shipping of Greece who are known to be opportunistic buyers and very much price conscious, this sale deserves special consideration especially given that the vessel is not ‘eco design’.

Aframax Tanker MT „Maersk Prime”

In the Aframax tanker market, earlier in August, the Chinese-built in 1998 LR2 tanker MT „DL Iris” (100,000 DWT, 1998, Dalian) was sold at the reflectively very strong price of $10.5 mil. However, the vessel has been sold ‘on subjects’ which demand a premium on pricing; further to it, the vessel had underwent her 3^rd SSDD last year at a cost of $4.5 mil with extensive steel place replacing and installation of heating coils, thus the pricing at $10.5 mil is not much flattering or of excess of scrap value (estimated in the $7 mil range) despite vessel certification validity till 2018. Earlier in the year, MT „Maersk Prime” (110,000 DWT, 1999, Dalian) was sold at $12 mil, thus the sale of MT „DL Iris” is not as appealing as it appears on surface; this market is heavily biased against tonnage built in 1998 and earlier. Two weeks ago, Chinese-built modern aframax tankers MT „DT Providence” and MT „Enrica Lexie” (104,000 DWT, 2008, Shanghai Waigaoquiao (SWS, China)) were sold from Italy’s Fratelli Armatori D’Amato Group to two Greek buyers in individual transactions at $33.5 mil each, which appears to be slightly higher than market levels and implying some market optimism. The easiest found comparable sale of Chinese-built aframax tonnage has been the sale of MT „Valdarno”, MT „Vallesina”, MT „Valbrenta” and MT „Valfoglia” (104,000 DWT, 2009, Hudong Zhonghua) which were sold in January this year at $30 mil each from Montanari to affiliates of Teekay (Teekay Investment Limited, ticker: TIL); it would look that the market has been looking up since January for modern aframax tonnage, although the Montanari tonnage was not well marketed for sale or perceived by buyers in January. The slightly older aframax tanker MT „Ambelos” (105,000 DWT, 2006, Sumitomo) was sold by Greek owners (Samos Shipping) to Pakistan National Shipping Corporation (PNSC) at $33 million, a strong pricing, again from quality Japanese-built tonnage. Just a week earlier, still Japanese-built tonnage MT „Morning Express” (105,000 DWT, 2000, Sumitomo) had achieved the rather anemic price of $11.5 mil from Japanese sellers, but again, more often than not, the way a vessel is marketed for sale affects the sale price indeed, irrespective of market conditions or tonnage quality.

The chemical and product tanker markets have been experiencing a rather calm summer; the freight market has been just acceptable and the orderbook has been a concern for many market players, especially for institutional investors who have had been dominating the market spirits of these sectors in a while. An interesting transaction has been the sale of Hull No 5126 (TBN MT „Amethyst” (50,000 DWT, 2014, SPP Shipbuilding) at SPP Shipbuilding in S Korea from Greece’s Ceres Hellenic Group (Peter Livanos) to Scorpio Tankers (ticker: STNG) at $37.1 million. The price seems to be approximately $2 mil above prevailing market levels, but again, in a becalmed market of freight rates un-expectedly low, one needs a transaction that originates waves or even maintaining the status quo that projections had been built upon.

Handy Chemical / Products Tanker MT „Green Stars”

For smaller chemical tankers, the sale of MT „Green Stars” (36,000 DWT, 2001, Daedong S.B., / IMO III tanker) at $12.5 million has taken place into this rather quiet segment of the market; however, the sale seems to indicate a rather strong market for smaller chemical and product tankers; after all, this market has been under the radar as most emphasis on chemical and product tankers has been for tonnage newer than five-years old and mostly for MR2 tanker of about 50,000 dwt.

Given that summer is seasonally the weakest period of the year for tankers and that this time last year (and the summers before) tankers – especially crude oil tankers – were happy to keep busy at any rate, this summer has been encouragingly robust, so much so as to make many investors believe that tankers are long due their place in the sun, especially since this summer sun has been unduly unkind to the dry bulk market, making any comparisons between market sectors much more favorable.

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