Shipping: Τhe market seeks signs for the direction of asset prices

Market insight  

By Konstantinos Kontomichis

SnP Broker

 

Intermodal Report -

Being at the peak of the holiday season, August is, as usual, the quietest month in terms of snp transactions, yet it is also a time very critical for the forthcoming quarter, as the market seeks signs for the direction of asset prices.

The future prospects of the snp market is  currently tangled between uncertainty in both global economic conditions and geopolitics, which affect market psychology and actual trade at the same time.

 

Despite the fact that freight rates in the dry sector have been depressingly low during the past months, the decrease in asset prices has not been equally strong. This is because during the past six years Sellers have been trained to acknowledge volatility incurred during the smaller shipping circles and to resist in reducing their price ideas, as they wait for the recovery of the freight market in September.

 

As far as older tonnage is concerned, we experience a correction in values of 90's blt vessels. However, the firm demolition prices, which in India, Bangladesh and Pakistan are still at Usd high 400's per long ton,  block a further correction in asset values since the “scrap age” of a vessel is being approached faster this way. 

 

On the newbuilding market, a big number of shipyards are sitting on a significant orderbook and currently don’t appear willing to proceed to heavy price discounts. Resale prices are perhaps a bit more elastic than newbuilding ones, and although they have dropped from the high levels reached earlier in 2014, they are still  fairly stable compared to rest of the market. A representative recent example is that of a 61,000dwt Imabari Blt 2015, which was sold at usd 31,4 mill. Most notably though, the premium required for prompt deliveries is thinning due to the poor freight market.

 

Having discussed what is going on the resale and vintage tonnage, which are heavily dependent upon newbuilding and scrap prices,  it is interesting to see what is happening to the "middle-aged" tonnage. The post 2000's blt ships are significantly exposed to the freight market, as newbuilding and scrap prices are not a critical factor in their value. Two notable snp transactions to be mentioned in the handysize market are the recent sale of M/V Atlantic Arrow (Abt 28,000dwt 2005 Blt Japan) which went for Usd 12,1m and that of the  M/V Cielo Di Genova (Abt 32,300dwt / 2005 Blt Japan) which was snapped, considerably higher, for Usd 16,5 mill last December. In the more volatile sector of Panamax, prices presented the higher correction. The M/V Ocean Lily (Abt 76,500dwt / 2006 Blt Japan) was sold in March this year at region Usd 25 mill, while the  M/V Yusho Spica (Abt 76,000 dwt / 2006 Blt Japan) was sold for around Usd 20 mill 3 months later.  The M/V Michele D'Amato (Abt 76.000 / 2005 Blt Japan) and the M/V Lowlands Nello were reported sold last week for USD 17,7mill and 17,2 mill respectively.

 

The level where the next comparable sale will be fixed, which will probably be the fresh market candidate M/V Golden Kiji (Abt 76,500dwt / 2007 Blt Japan), will be significant in terms of where the market is heading next, so remain seated with your seatbelt fastened as there might be a few more bumps ahead.

Chartering (Wet: Softer - / Dry: Stable + )

The Dry Bulk market closed slightly up last week, while sentiment appears to be firming despite the fact that in terms of fresh business things continue to remain fairly quiet. The BDI closed today (12/08/2014) at 836 points, up by 44 points compared to Monday’s levels (11/08/2014) and an increase of 81 points compared to previous Tuesday’s closing (05/08/2014). The crude carriers market was under pressure this past week, while we expect that the stable volume of enquiry should lift rates sooner rather than later. The BDTI Monday (11/08/2014), was at 793 points, a decrease of 22 points and the BCTI at 555, an increase of 8 points compared to previous Monday (04/08/2014).   

 

Sale & Purchase (Wet: Stable- / Dry: Softer - )

SnP activity has slowed down further this past week. Despite the fact that the third week of August is particularly quiet in Greece, as most market players are off on holidays, it seems that buying interest is still very much alive amongst Greeks, who have once more almost monopolized the list of reported deals On the tanker side, we had the sale of the “DL IRIS” (109,277dwt-blt 98, China) ), which was picked up by Far Eastern buyers for a price of US$ 10.3m. On the dry bulker side, we had the sale of the  “NAVIOS TITAN” (82,936dwt-blt , 05 Japan) , which was picked up by Greek buyers for a price of  $17.7m.

 

Newbuilding (Wet: Stable- / Dry: Stable- )

As expected, things in the newbuilding front remained extremely quiet throughout the week. With most yards scaling back their usual operations and a big chunk of owners currently away on holiday, there is little to report in terms of new orders, as any marketing efforts usually put forth by builders have eased for now and ordering interest is pretty much non-existent. In terms of prices, things remained unchanged across the board this past week but taking into account the persistent slowdown of activity in the newbuilding market in combination with the downward price trend of the past months, it feels that this stability, especially when it comes to dry bulkers, is more due to lack of volume/ last done orders and less due to the market moving on more solid ground. We therefore don’t expect any major discounts in the coming weeks either and certainly not before yards make a comeback and reassess their marketing strategies for the last quarter of the year. In terms of recently reported deals, Singaporean owner, Navig8, has placed an order at STX, in S. Korea, for four firm and four optional IMO II MR tankers (49,000dwt), for a price of US $ 40.0m each and with delivery set to begin in 2016.  

 

Demolition (Wet: Stable + / Dry: Stable + )

The demolition market continues to display a mixed picture, with sentiment in the Indian sub-Continent remaining split. From one side, Indian breakers are still under a lot of pressure as they continue to face the usual challenges presented to them during the past weeks. Both the Indian Rupee and the price of local steel plates have struggled for yet another week and as a result, breakers in the country have pretty much taken themselves off the bidding process, while prices in the country continued their downward slope. We don’t expect things to change too much, unless some of the uncertainty currently surrounding the local market fades away. On the other hand, the end of the Eid Holidays, has marked a strong come back for Pakistani and Bangladeshi breakers, as they both continue to take advantage of India’s absence, with Pakistan snapping  the majority of quality candidates that comes in the market. Average prices this week for wet tonnage were at around 305-500$/ldt and dry units received about 290-475$/ldt.