By Nassos Soulakis
In a downward moving market, softer SnP activity is usually a given, as the gap between Sellers’ and Buyers’ ideas widens, especially when the drop in rates takes place in a relatively short period of times, which was the case recently. Aside from the levels of the market and the respective number of deals as this is depicted in the table below, what might be even more interesting to look at is whether in these cases asset prices also moved in tandem with SnP activity and to what degree.
In the case of the 28kdwt Japanese Handy, the number of sales during the first two months of 2017 was more than double compared to the same period this year. Two years ago a 2006 built vessel was valued at high USD 5 million, while the same amount of money will today get you a 2004 built vessel –four years older – even though the BHSI is around the same levels.
As far as Supramax SnP ytd activity is concerned, this is decreased around 30% compared to 2017, while prices are today at relatively higher levels. Indeed, a 57k dwt 2011 Chinese built vessel was valued at around mid- USD 9 million back then, while a 57k dwt 2011 Chinese built Supra was fixed today for high- USD 9 million.
The fact that a very bad year preceded Q1 2017 certainly allowed for more deals back then, with Buyers being hungry for tonnage, after the market had finally started to move up, and Sellers being “exhausted” following many challenging months and ready to accept lower levels. In trying to offer an explanation for the price resistance one could say that Buyers could be already cashing in an extended recovery in rates (after all earnings have already been improving for all other sizes but Capes), which renders them more aggressive in securing tonnage in a market that had already seen a number of candidates being withdrawn.
So the anxiety that this could be a window of opportunity to invest that could be soon closing as the market recovers plays a significant role in supporting asset prices. Many are indeed expecting that prices will not adjust accordingly to today’s rates and that positive freight performance from a point onwards will eventually result in even higher prices, which in retrospect will render todays levels as the window of opportunity. So maybe it is time to redefine what “window of opportunity” means and whether this is a short term correction in prices compared to the very recent past or a longer period during which asset prices align with earnings.
Chartering (Wet: Stable+ / Dry: Stable-)
While the positive correction in earnings for dry bulk vessels continues up to today, pressure for Capes keeps mounting, with the market for the big bulkers still failing to ride the positive momentum. The BDI today (05/03/2019) closed at 663 points, down by 6 points compared to Monday’s (04/03/2019) levels and increased by 14 points when compared to previous Tuesday’s closing (26/02/2019). Further VLCC gains last week have given another boost to the crude carriers market that saw additional premiums noted for period numbers as well. The BDTI today (05/03/2019) closed at 754, decreased by 45 points and the BCTI at 585, an increase of 2 points compared to previous Tuesday’s (26/02/2019) levels.
Sale & Purchase (Wet: Firm+ / Dry: Firm+)
Buyers have been feeling more and more encouraged by the extended improvements in earnings for both tankers and bulkers, with a generous number of deals taking place last week in both sectors, while interest for Capesize units remains muted as earnings for the big bulkers are still in a freefall. In the tanker sector we had the sale of the “GULF GLORY” (298,414dwt-blt ‘02, Japan), which was sold to Hong Kong based owner, Kunlun Shipping, for a price in the region of low $24.0m. On the dry bulker side sector we had the sale of the “TE HO” (77,000dwt-blt ‘04, Taiwan), which was sold to undisclosed buyers, for a price in the region of $7.1m.
Newbuilding (Wet: Stable+ / Dry: Stable+)
In one of the busiest weeks of 2019 in terms of reported orders, the appetite for newbuilding tonnage across the more conventional sectors remains evident, while despite the overall drop in dry bulk orders this year so far it seems that Post-Panamax orders remain popular among owners looking to invest in the sector. In terms of confirmed newbuilding orders placed during January and February compared to the same period last year, tanker contracting is witnessing an admittedly impressive increase calculated at around 40%, with VLCC and MR vessels being the most popular. Gas carriers ordering at the same time remains steady, while dry bulk sector newbuilding activity has softened compared to the two first months of 2018 by more than 50%. In terms of recently reported deals, Greek owner, Kassian, placed an order for one firm Post-Panamax bulker (87,000 dwt) at Mitsui, in Japan for a price in the region of $36.5m and delivery set in 2021.
Demolition (Wet: Firm+ / Dry: Firm+)
The demolition market remains on an upward path, with additional increases noted on average prices in the Indian subcontinent market last week. Despite the fact that Pakistani buyers remain quiet, it seems that the competition between Indian and Bangladesh is more than enough to keep supporting the upward momentum of prices that doesn’t seem to be affected by the fact that supply of demo candidates in the market remains healthy. In terms of demolition activity in the first two months of the years, tankers show a remarkable decrease of more than 74% compared to 2018, which is naturally explained by the greatly improved freight market of the past 12 months, while on the other hand dry bulk vessels show a 26% increase in scrapping, with disappointing earnings so far in 2019 supporting the trend. Average prices in the different markets this week for tankers ranged between $280-450/ldt and those for dry bulk units between $270-440/ldt.
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