Crude Oil Tanker Sale & Purchase (S&P) Update

Tankers: Think Counter-cyclically!

The tanker market has been positively surprising shipowners and investors so far this year, and 2015 is turning out to be the best year for this segment of shipping in a long while;, since 2008, to be accurate. It’s hard to fathom that just this time last year, VLCCs and Suezmaxes were barely touching $25,000 pd in the spot market, while nowadays these very types of vessels almost reach thricely the levels of last year.

Strong freight rates are always welcoming news, no doubt. On the other hand, an investor has to look forward and trying to decipher present trends that would matter in the future. One of the noticeable things of the present tanker market is that while freight rates are strong, asset prices have not improved correspondingly. Typically when freight rates are very strong, asset prices, with a short lag, typically follow the market higher: everybody wants to buy in a hot market, and the lucky owners for ‘hot’ tonnage are looking for a premium to part company with their vessels. However, in the present market, asset prices – at least for certain segments of the market – have not improved. Is this an omen of changing trends in the market, a new paradigm, or indicative of a market where ‘hotness’ has not been given proper consideration, for the right or wrong reasons.


Owned by a private equity fund, tanker MT ‘Orwell’ Image Credit: Karatzas Photographie Maritime.

In a previous article we mentioned the volatility smile, where ‘middle aged’ tonnage seems to be completely out of favor, and thus comparatively undervalued. And we can ignore the market of 15+ year-old tankers, as this is a market with its own dynamics. However, modern tonnage, allegedly the sexiest tonnage of all, has not behaving too strongly either. Typically, Wall Street analysts love modern tonnage given that vessel daily opex is lower for modern vessels and visibility of earnings are a tad better, and thus the positive bias from financial buyers for modern tonnage; on the other hand, cash-rich buyers of vessels with access to terminals and end users only pay lip service and show incrementally little interest for modern tonnage at full price – they would rather buy into a value proposition rather into sexiness. Accordingly, a great deal of sale and purchase transactions have been concentrated at the opposing ends of the spectrum leaving for a gap in the middle.

The VLCC market has been fairly active with Euronav (ticker: $EURN) acquiring four VLCC resales from Greece’s Metrostar at $98 mil each with options for additional tonnage (N/B Hyundai HI (Gunsan) Hull Nos 2725, 2726, 2727, 2728, 300,000 dwt and deliveries 2015 and 2016). Tsakos Energy Navigation also acquired two resales from US-based private equity fund two VLCCs (300,000 dwt, Hyundai Samho Hull Nos S779 and S780 with 2016 delivery) at $97 mil each. Shinyo International after a long respise has been active again in their favorite sector with the acquisition of three modern VLCC tankers MT ‘New Founder’, MT ‘New Medal’ and MT ‘New Coral’ (297,500 dwt, Shanghai Jiangnan Changxing Sb/China, 2008/2009/2010, respectively) at $245 million. Greek reference account Thenamaris has acquired MT ‘DS Vidonia’ (306,000 dwt, Daewoo, 2006) from DS Shipping at $57.5 million. Ridgebury Tankers based in the USA have acquired four older VLCCs MT ‘Pioneer’, MT ‘Progress’, MT ‘Pride’ and MT ‘British Purpose’ from Windsor Petroleum (1999/2000/2000/2000, 306,000 dwt, Samsung Heavy) at $150 mil, which amount was from equity freshly sourced from the buyers. While the age of the tonnage may rise eyebrows for financial buyers, it’s worth noting that Ridgebury were already the managers of the vessels and the sale of the vessels via the control of the bondholders after Windsor Petroleum went out of business.

In the Suezmax tanker market, AMPTC has reported sold MT ‘Zallaq’ (153,000 dwt, Hyundai Heavy I., 2001) at $23 mil to clients of Avin in Greece; it is understood that the vessel is due drydocking in the second half of this year, which partially explains the softer-than-expected pricing. It is reported that US-based private equity fund CarVal Investors has sold Resale Hull No N/B New Times SB Jingjiang 0315819 (155,000 dwt, New Times, 2016) to clients of Dynacom Tankers in Greece at $59 million; it seems that the sellers have ordered this vessel, alone, in January this year at $65 mil, and less than six months later have sold at almost 10% loss; a change of heart, unless the ordering of a Suezmax tanker was their ‘option’ to enter into this market segment. On older tonnage, Vista Shipping has sold their Suezmax tanker MT ‘Pride’ (150,000 dwt, Mitsui Shipbuilding, 1993) at a scrap related pricing of $12.5 mil.

The aframax tanker market seems to be the market segment in the crude tanker market which has least benefited from the present surge in freight rates, and it has shown the least market activity, comparatively speaking. China seems to be replacing the US as the major, solid buyer of crude oil in the international markets since the emergence of shale oil, and transporting oil to China in Aframax tankers is not as cost efficient as using larger tankers. In the middle of June, Blue Lines Shipping has sold the oddly-sized Aframax tanker MT ‘BLS Advance’ (85,000 dwt, Sasebo, 2002) at appr. $20 mil to clients of Greece-based Avin International. Similarly aged MT ‘Kuban’ (106,000 dwt, NKK Corp, 2002) was sold by Novorossiysk Shpg. to Soechi Lines in Indonesia at just excess of $17 mil. It’s worth noting that Soechi Lines bought a similar vessel in many respects (size, shipbuilder pedigree, etc) MT ‘Hellespont Tatina’ (105,000 dwt, Sumitomo S.B., 1999) in September 2003 at below $10 mil, and less than two years later, asset pricing in the segment has proven many a buyer right. The still Japanese-built aframax tanker MT ‘Texas Star’ (115,000 dwt, Sanoyas, 2003) was sold by Atlas Maritime in Greece to Yinson Holdings in Malaysia at $28 mil; it had been reported at the time that this tanker then named MT ‘Herm’ was bought by Atlas Maritime in November 2012 at just excess $18 mil, representing a nice asset play transaction for the company.


Tanker ‘Princimar Americas’, evocatively named, downstream the Houston Ship Channel. Image credit: Karatzas Photographie Maritime.

The tanker market had been weak for quite a few number of years, with many shipowners trading spot in the sector having reached the limits of their tolerance. Now that the market has turned around, there is renewed interest in the sector; some of such activity was to be anticipated as pent-up ‘demand’. However, while still the interest is mostly centered around modern tonnage and M&A activity, a perfunctory review of the transactions mentioned in this report clearly points for the sectors with greatest potential: ‘sexiest’ segment of the moment doesn’t make most profitable trade.

Probably, ‘think counter-cyclically’ is a good starting point when pondering shipping!

© 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.


Dry Bulk Sale & Purchase (S&P) Update

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.

2015 06JUN_BDI Graph

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.

© 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 (March 22th, 2015) – Dry Bulk Market Focus

The last couple of weeks have brought the slimmest hope that springtime may be forthcoming for the much beleaguered dry bulk market; we are not talking about signs of an impending great recovery, but at least the dry bulk indices have stopped dropping and have shown marginal improvement; the widely-observed Baltic Dry Index (BDI) established an all-time low point on February 18th at 509 and closed at 591 on Friday March 20th; on percentage terms the improvement seems impressive (close to 20%), but again one has to keep in mind that the low of 509 was a thirty-year low – almost, and despite the improvement, dry bulk vessels are earnings below cash break even rates – thus, the improvement is not financially meaningful; it only bears psychological significance that hopefully the worst is behind us, for now.

As one would expect, publicly listed dry bulk companies continue to report abysmal earnings (actually losses), and earnings conference calls tend to range from confessionary litanies to Christmas lists on what would turn the market around. There have been the occasional corporate bankruptcy here and there and some ship arrests on a limited basis but nothing of a Korea Line Company (KLC) magnitude shockwave. Likely another blowup the size and significance of KLC will not materialize in the dry bulk market as KLC had taken shiploads on vessels at sky-high rates prior to 2008 while most of the traders / charter-in operators today have established their cost floors and rates at substantially lower rates in 2012 to 2014.


Supramax Bulker ‘Star Epsilon’ passing the Statue of Liberty in the New York Harbor; image source: Karatzas Photographie Maritime

While the dry bulk handysize, supramax and to a lesser extent panamaxes were slowly improving for a couple of weeks now, capesize vessels are kept on a freight declining route; only this week capes bounced from a low of 357 points to 423 points in a matter of two days, generating suspense for the coming week whether the freight rates will keep moving higher. It may be so, and it will be most welcome news; however, over the longer term, capesize tonnage likely will have a tough ride: the Chinese economy has both been slowing down and also getting shifted from industrial production to consumption which does not bode well for iron ore imports and the cape market; further, China has been producing (and storing) much more steel that can use and recently there have been talks of China dumping below cost steel to the international markets raising the prospects that the World Trade Organization (WTO) may be asked to look into the complaints; the fact that mining companies have been building up their own captive fleets and that Vale managed to find a resolution with China and Cosco for their so-called Valemax fleet is not boding well for the overall capesize market and the independent owners. A boost to the capesize market is much needed and hoped for, but on the long term, one has to be skeptical of too rosy prospects.

In terms of sale & purchase activity in the dry bulk markets, at present, actual activity is low; there is lots of ‘browsing’ and ‘interest‘ for buying quality vessels but little of such interest is translated to actual transactions; buyers are trying to find a ‘balance’ of not buying too early when bulkers can further drop in pricing, but, on the other hand, they do not want to miss out when the market recovers; it seems a patience search of the absolute bottom in asset prices is the name of the game. Few transactions can be reported in the dry bulk market and mostly for small, older, cheaper vessels (in absolute terms); given the lack of benchmark transactions is hard to place an accurate estimate of asset price decline; however, the trend is apparent that based on the transactions reported the market keeps heading lower.

In the capesize market, the sale of MV „Cape Stork” (171,000 dwt, IHI, 1996) was reportedly at close to $7.8 mil, a scrap related price level; interestingly, the vessel was sold in November 2014, less than six months ago, at excess of $15 mil, implying that the buyers’ bet then on a seasonal recovery for capes during the holiday season has not played out as expected. In another interesting transaction in the sector, Oaktree has sold at $80 million apiece two VLOCs MV „Selma B“ and MV „Camilla T” (320,000 dwt, HHI, 2010/ 2011, respectively) to Olympic Shipping (Onassis Group) to be converted to VLCCs; Oaktree was involved with the vessels during the restructuring of Nobu Su’s TMT (Today Makes Tomorrow); during the last year, the Onassis Group has shown to be an active buyer of tonnage, primarily in their historically beloved tanker market; however, the pricing for these vessels seems to be too strong given the costs, risks and ‘hair’ involved for the conversion project, not mentioning the concern that typically converted vessels do not seem to get special attention for the remaining of their trading lives by the charter market.

In the panamax bulker market, the post-panamax bulker vessel specialized for the coal trade MV „Sekiyo” (91,500 dwt, Hitachi, 1998) was sold at close to $9 million to Chinese buyers by Nippon Yusen Kaisha (N.Y.K. Line); the price is at premium of a couple million to scrap pricing, which is the norm these days for tonnage built prior to 2000. In the same sector, MV „Lopi Z” (72,000 dwt, Shin Kurushima, 1998) was sold to Norwegian investors in a sale-and-lease back transaction from Dalomar Shipping in Greece at approximately $6 mil, a purely scrap related price.


Supramax Bulker ‘Bulk Colombia’ in the Port of Hamburg; image source: Karatzas Photographie Maritime

The supramax market has proven the most active in the dry bulk market, with the sale of MV „C.S. Rainbow” (55,700 dwt, Mitsui, 2006, 4x30T cranes) at $11.25 mil by Japanese sellers to Greeks buyers (Blue Seas). The sale seems to be well below the price achieved by same sellers of similar vessel MV „Sunny Ace” (55,800 dwt, Kawasaki, 2005, 4x30T cranes) at $11.3 mil one month ago (vessel was also SSDD due.) Looking further back in January, when MV „VERDI” (2007, 58,500 DWT, Tsuneishi Zhoushan) was sold at $15 mil, the trend in supramax bulker pricing is clear. It’s really very hard to comprehend that ten-year-old supramaxes were selling at more than $60 mil in the spring of 2008 and at $22 mil just one short year ago; now we are talking about $10 – $11 mil for a ten-year-old vessel. The ten-year-old handymax MV „Ramada Queen” (46,000 dwt, Oshima, 2005) with drydock due sold at an eye-popping price of $8.7 mil to Greek buyers (Primal). The older handymax MV „Valopoula” (45,500 dwt, Tsuneishi Cebu, 2000, 4x30T) was sold at a respectable but still scrap related pricing of $6.1 mil to Greek buyers again (Dianik Shipping) with drydosck due. The smaller and meaningfully older handymax MV „Bay Ranger” (43,500 dwt, Oshima, 1995, 5x25T cranes) was sold at appr. $4.5 mil with the vessel recently having been drydocked (present estimated scrap value of about $3.1 mil at 7,350 ldt.) The similar vessel MV „Hellenic Horizon” (44,800 dwt, Halla, 1995), 4x25T cranes) was sold at a scrap related $3.7 mil – with drydock promptly due.

As one can note, recent transactions in the dry bulk sale & purchase market resemble rather a scrap report, with vessels sold between 10-20 years old and no modern tonnage to report on, drydock position and estimated scrap price always as points of reference. And the prices achieved resemble prices for vessels selling for scrap rather than further trading, another indication that buyers opt to act only when there is little downside risk with their acquisitions, either with vessels with 5+ years of trading life at scrap pricings on a minimal pricing over scrap and drydocking for vessels having a decent survey position.

Can things get more difficult?

© 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 (March 8th, 2015) – Tanker Market Focus

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.

2015 03MAR08 Sale&Purchase Tanker Market Update_Graph TC Rates

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 27th, 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.

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.

© 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 (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.


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.