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

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

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

BDI & Baltic Indices since 2013

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

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

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

GRAPH_World Dry Bulk Fleet Development

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

 

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

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

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

MT ANNOULA 1

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

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

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

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

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

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

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


© 2013-2015 Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website.Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

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

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

Baltic Indices since SEP2014_Graph 1

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

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

Baltic Indices since JAN2013_Graph 2

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

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

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

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

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

MV GLOBAL SUCCESS 3

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

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

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

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

Baltic Indices since JAN2011_Graph 3

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

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

Merry Christmas!


© 2013-2014 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 (October 6th, 2014)

Fall season is here, but the expected seasonal recovery of the shipping market has still to register an impressive presence; dry bulk rates have been moving sideways on rather uninspiring levels, and tanker rates, the star of the summer, have been rather marginally softening instead of seasonally increasing. There are factors that have been affecting the overall market, and shipping rates are just the end result of macro-economic factors. The U.S. economy seems to be growing slightly better than expectations, and the Fed’s statement that interest rates will be increasing sooner than later has moved the dollar higher against most currencies. And, implicitly, higher interest rates make ‘carry’ positions in the commodities market a riskier more expensive proposition, thus pushing down commodities pricing. At the same time, Chinese growth seems to be decelerating, which has recriminations as well on the commodities (and FX) markets worldwide, primarily pushing down iron ore pricing (and the highly correlated Aussie Dollar). In the oil market, Saudi Arabia, the de facto leader of the OPEC sellers’ club, unilaterally and un-expectedly dropped oil pricing to Asian clients by $1 / bbl; this is one of the few times in OPEC’s history that the Saudis go after market share rather than pricing power, and reports from the OPEC’s last meeting in Vienna suggest a highly dis-functional club at this stage, and likely the $1/bbl price reduction will not be the last market-moving news from Vienna. OPEC’s search of a new identity is another side-effect and the U.S. shale oil game changer; till a few years ago, OPEC had a great captive market in America’s SUVs, which now can be filled at US$3.44/gallon for premium gasoline (our sympathies to our European readers and the ca. €1.70 / L gasoline pricing (approximately US$ 8 / gallon)).

The week has been light as China was closed for most of the week for their National Day, Hong Kong too (formally and informally with the ‘Umbrella Revolution’), Islamic countries for Eid Al-Addha, and Germany was celebrating Day of Unity (Tag der Deutschen Einheit) on Friday. Sale & purchase activity has been moving along the recent trends, of modern vessels sought by publicly traded companies and companies with access to the financial markets, while private owners usually are focusing on older and lower-ly priced tonnage, in absolute terms.

MT BW AMAZON 10 w: TORM CARINA

Product Tankers ‘BW Amazon” and ‘Torm Carina’ in New York Harbor. http://www.basil-karatzas.com

In the tanker market, Flagship Marine Ventures (JV between Prime Marine of Greece and U.S.-based fund) sold two LR2 tankers with 2015 delivery to Scorpio in Monaco; Scorpio Tankers (publicly listed) has not issued any required press releases, so the assumption is that Scorpio-privately-held acquired sisterships MT „Flagship Rose” and MT „Flagship Dahlia” (115,900 dwt, Daehan, 2015) for $57-59 million each, depending on the report, a rather strong price nevertheless; in our last report, we identified the vessels as Daewoo Hulls Nos 5402 and 5403. It is understood that the contract price for these vessels was approximately $47 mil each, in July 2013. Based on standard contract terms, sellers likely generated more than 50% return on equity, not often seen in shipping! A lot of discussion has taken place about newbuilding contracts placed in an already well-supplied market, but progress payment structures can basically work as options on hulls to be flipped, and they work beautifully when they do. Great for the sellers, buyers likely a more optimistic view of the future, but the end result is that two more vessels are added to the world fleet. For older LR2 tonnage, there has been an additional sale to report, MT „River Eternity” (105,000 dwt, Sumitomo, 2006) which was sold by K-Line to undisclosed buyers at $30 million. Still in the products tanker market, the LR1 tanker MT „Moray” (76,000 dwt, Daewoo, 2000) was sold at $15 million to undisclosed buyers, a rather soft pricing.

In the MR tanker market, it has been reported that York Capital in the US has disposed of five MR2 tankers (2x SPP Resales, 2016-delivery, 50,500 dwt) at $36.5 million and (3x Hyundai Mipo Resales, Huls Nos 2446, 2447, 2448, 2015-delivery, 50,500 dwt) at $37.0 million each. Buyers have reported to be ‘undisclosed’ Far East-based or Scorpio in Monaco, again, as per a couple of market reports. Still in the MR tanker market, Korean-built tanker MT „Nord Fast” (40,000 dwt, SLS, 2008, IMO III) was reported sold by Norden in Denmark to compatriots Maersk Tankers at $19.5 million, a price seeming slightly below prevailing market.

In the stainless steel chemical tanker market, there has been an interesting sale of MT „Maemi II” (20,000 dwt, Fukuoka, 2008) to US buyers (Transportation Recovery Fund) at $27.5 million, and MT „Sunny Iris” (7,800 dwt, Fukuoka, 2000) at approximately $8 mil to undisclosed buyers.

In the dry bulk market, there have been few transactions to report, and none for modern tonnage of big-sized vessels (capes and panamax / kamsarmax). Supramax bulker MV „Sea Elegance” (50,000 dwt, Oshima (Japan), 2002) achieved $12.5 mil to Greek buyers (Drastirios Shipmanagement), which seems to be a step down in pricing from the sale of slightly newer / larger MV „Sea Lily” (52,000 dwt, Tsuneishi, 2004) at $15.5 million last month to CosBulk of Greece. This has been the most interesting dry bulk transaction of the week, which may be partially explained by the holiday schedule worldwide, as mentioned earlier.

Tonnage from Japanese sellers has been seen more frequently recently in the market, and the weakening Japanese Yen seems to be the motivating factor of the timing of such tonnage for sale. Presuming that the strength of the US Dollar will be sustainable, and given the so-so success of ‘Abe-nomics’, probably more quality tonnage from Japan will be placed in the market for sale.

MV BULK COLOMBIA 6

Supramax Bulker MV ‘Bulk Colombia’ inbound in Port of Hamburg. http://www.basil-karatzas.com

Finally, while freight rates seem to be moving nowhere, and that the orderbook overall has been strong, there are still few vessels that are getting scrapped / withdrawn from circulation. So much so, that scrap prices have been persistently at or even above the $500/ldt mark, having proved (so far) wrong doomsayers and ‘old timers’ predicting a scrap market at below $300/ldt due to an exit from the market of older / non-economical vessels. There has been increased concern that intermediaries and cash buyers have been ‘forced’ to take speculative positions to get their hands on tonnage, ideally good quality vessels to be forward to end demolition yards at a higher price, and that the market may be due for a correction. The truth of the matter is that vessel demolition has always been a high-risk business, for execution and speculation, and the present environment makes it makes it even more challenging to get vessels scrapped with a high degree of certainty of getting a contract performance, thus counterparty risk becomes of paramount importance.


© 2013-2014 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 (September 27th, 2014) – Dry Bulk Market Focus

It’s hard to believe that the Baltic Dry Index (BDI) started the year above the 2,200 mark given that now is standing at below 1,100, and having spent most of the late spring and summer below 1,000. A seasonal rally had religiously been prayed for and for a few recent weeks capesize rates improved to ‘high teen levels’ (approximately $18,000 pd on average spot market), but then again, the rally seems to have run out of steam a bit too early. A worldwide bumper crop season of grains, primarily in North America, has been holding the hopes for boosting panamax rates especially in the Atlantic, but it seems railroad capacity has preferentially been tied up to shipments of shale oil, leaving inland seaways transport to cope with the movement of the cargo along the Mississippi River to New Orleans for exporting.   China, as this was put into perspective in a recent New York Times op-ed article, has been focusing on clean air and has shut down domestic coal mines of poor calorific quality or high sulphur content, and likewise imposed higher standards of imported coal, which likely would stimulate increased imports and thus help drive higher dry bulk freight rates. There has been speculation that, over the long run, China will be shifting its power generation to natural gas, which is perceived as a negative development for coal miners worldwide, but good for the LNG trade fortunes. In India, there has been noted excessive port congestion with vessels waiting to unload coal, and there is hope that such port congestion could translate to higher rates. The decision by the Supreme Court of India to declare ‘arbitrary and illegal’ the issuing of licenses for more than 200 coal mines issued since 1993 creates further hopes that coal imports would be needed for the country to meet its domestic needs. The decision is not revoking the licenses altogether yet, but taking action on the ‘coal scam’ has created great uncertainty for the approximately 30 operational mines.

MV BERGE MACCLINTOCK

Capesize vessel ‘Berge McClintock’ (Image source: http://www.shipspotting.com

In terms of sale and purchase in the dry bulk market, Bunge has exercised a purchase option to acquire from Fleet Management MV „C Phoenix” (2011, Jiangsu Rongsheng, 176,000 dwt) at a deep-in-the money price of $40 million. It is understood that the vessel has been already on charter to Bunge until January 2015 at $15,000 pd with Bunge’s option to extend at similar levels for an additional year, which definitely has affected pricing further. Navios has purchased from Berge Bulk MV „Berge McClintock” (2012, Hanjin Heavy, 179,000 dwt) at $52.5 million. MV „Rio Manaus” and MV„Rio Montevideo” (2012, HHIC- Philippines, 180,000 dwt) were sold CarVal Investors at $52 million; certain broker reports have the sale price at $48 mil, which may be better in line with the market given the thin pedigree of the shipbuilder and also the notion that sellers have been the Ahrenkiel Steamship in Germany, knowing to have been in discussions with their banks. CarVal has been active in shipping recently as a couple of week ago has been associated with the purchase of another modern cape MV „Silver Surfer” (2013, Sungdong S.B., 179,000 dwt) from Sinokor at $53.5 million, which would still be considered at a slight discount to the market, placing prompt capesize re-sales below the $60 million market, in order to reflect for the price achived for this 2013 tonnage.

MV JIDAL VADAR

Built at Burmeister & Wain (Denmark), panamax bulker MV ‘Jindal Vadar’ (Image source: http://www.shipspotting.com)

Vintage panamax bulker MV „Castillo de San Petro” (1994, Korea, 73,500 dwt) was sold for further trading at $5.7 million to undisclosed buyers, a price in line with her scrap value (10,624 ldt); vessel is immediately SSDD due. Similarly aged MV „Sinokor Pioneer” (1995, Sumitomo, 70,000 dwt) was sold at $5.95 million to Chinese buyers, with vessel having about a year to trade before her next drydock, while Danish-built MV „Jindal Varad” (1994, Burmeister & Wain, 75,800 dwt) was sold at $5.8 million to Indian interests. In terms of modern panamax bulkers, the most recent transaction of modern tonnage has been almost a month ago when MV „Zhushui 5” (2012, Seroya Zhushui, 79,500 dwt) fetched a discounted $20.5 mil by Greek buyers; the transaction is interesting that a relatively new Chinese shipbuilder built the vessel on their own account (with no independent third-party supervision besides the classification society) and then facing weak demand when attempting selling the vessel, and thus the soft cash price; interestingly, we keep seeing more tonnage of that nature.

MV SEA LILY

Supramax bulker MV ‘Sea Lily’ (Image source: http://www.shipspotting.com)

In the supramax / handymax segment, MV „Emerald Strait” and MV „Endeavour Strait” (2010, Sanfu, 56,800 dwt) were sold by Rehder Carsten in Hamburg to Maritime Opportunities in Norway at $22.5 million, a rather strong price, given the vessels’ un-inspiring shipbuilding pedigree. Norwegian financial buyers were also the buyers of MV „Free Jupiter” (2002, Cosco Nantong, 47,000 dwt) at $12.3 million while sellers Freeseas (Nasdaq: FREE) took the vessel back on bareboat charter for seven years at $5,350 pd. Supramax bulker MV „Sea Lily” (2004, Tsuneishi Zosen, 52,500 dwt) was sold to Greek buyers at $15.5 mil by CosBulk to Greek buyers.

In the smaller handysize market, the well-built in Japan MV „Kwela” (2002, Kanda, 32,500 dwt) was sold at approximately $10.7 mil to ACT Infraport in China, while MV „Caribbean Frontier” (2002, Minami Nippon, 28,000 dwt) was sold at 9.5 million. MV „Fortune Frontier” (2002, Shikoku, 29,000 dwt) was sold in August at $9.7 million, confirming an asset price stability despite the end of the summer and renewed optimism on improving shipping prospects. MV „Ocean Pearl” (1994, Kanda, 28,000 dwt, 6,352 ldt) built at same shipyard in Japan achieved a very respectable $6.8 million by Chinese buyers. Exact sistership MV „Theomitor” (1994, Kanda, 28,000 dwt) by Anbros Maritime in Greece achieved also same price of $6.8 million in independent sale to also Chinese buyers a week earlier. MV „Silver Star” (1995, Saiki, 22,000 dwt) achieved a strong price of $5.1 mil given her immediate SSDD due position (5,318 ldt). Finally, MV „Lady Anthula H” (1999, 20,700 dwt, 5,300 dwt) was sold in a bank-driven transaction to Turkish buyers at $4.5 million with her SSD immediately due.

In re-capping market activity, the trend of institutional investors or buyers with the access to the capital markets is focusing on modern, expensive tonnage; lack of credit for the traditional, independent shipowner has shifted the market towards small transactions with relatively older tonnage; reflecting the nature of the buyers, there have been a clear bifurcation in the buying interest as well in reference to tonnage quality, with owners putting their own money on the table seeking value deals with quality (read Japanese) tonnage; there is little tolerance for sub-par tonnage; for institutional buyers, shipyard pedigree is a lower priority as this apparent with the capesize transactions reported herewith.


© 2013-2014 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 (September 27th, 2014) – Tanker Market Focus

Since our last week three weeks ago, crude tanker rates have softened with VLCC and Aframax average spot rates at approximately $12,000 pd and Suezmax tankers at approximately $16,000 pd, on the back of weak trading activity. At such levels, crude tanker spot rates stand substantially below the yearly average, and it has to be noted that present VLCC rates are very close to operating break even and far below levels required to pay for the vessel’s financial cost as well. Despite the weakness in freight rates, there has been meaningful activity in the sale & purchase market at strengthening prices, as optimism keeps building that the crude tanker market is well into a structural market recovery, and thus the present weakness in the market is only seasonal. A recent article on Reuters that pressures are building up in the US on allowing crude oil exports can only interpreted as a positive development for the crude tanker markets.

MT SAMCO SUNDARBANS

VLCC Tanker ‘Samco Sundarbans’ sold in en bloc transaction to DHT Holdings (Image source: Samco Shipholding)

Double Hull Tankers DHT Holdings (NYSE: DHT) has finalized the acquisition of Samco Shipholding Pte Ltd in Singapore with ownership of seven VLLC tankers with average age of 4.5 years at approximately $322 million; DHT Holdings also acquired in the same transaction and remuneration Samho’s 50% interest in Goodwood Ship Management.   The vessels are built at Hyundai Samho and they are MT „Samco Sundarbans” and MT „Samco Taiga” (2012, Hyundai Samho, 318,000 dwt), MT „Samco Amazon” and MT „Samco Redwood” (2011, Hyundai Samho, 318,000 dwt), MT „Samco Europe” and MT „Samco China” (2007, Hyundai Samho, 318,000 dwt) and MT „Samco Scandinavia” (2006, Hyundai Samho, 318,000 dwt). This being a corporate transaction rather than a pure asset acquisition, there have been additional considerations, although DHT Holdings appears to be paying approximately $50 mil below the nominal market value of the vessels. On pure asset sales, BW Maritime of Singapore has sold MT „BW Nyssa” (2000, Daewoo, 299,500 dwt) to Smart Tankers in Greece at $29.5 million, probably at a $2 million premium over the market. The price reveals strong buyer’s optimism as the vessel is due drydock and special survey in January 2015 at a cost of several million dollars while she will be turning the dreaded 15th anniversary from delivery that puts her on the second priority list of many charterers. The vessel was reported in January 2014 as tied up to a conversion project at $32 million purchase price which transaction apparently has not materialized.

In the Suezmax tanker market, MT „Aegean Navigator” (2007, Hyundai, 159,000 dwt) has been reported sold at $48 million to undisclosed buyers, while other reports state en bloc deal along with sistership MT „Aegean Horizon” and MT „Aegean Dignity” and MT „Aegean Angel” (2004, Hyundai, 159,000 dwt) to clients of Teekay (likely Tanker Investment Limited) at pricing to be confirmed.

In the Aframax tanker market, there has been the sale of coated tanker (LR2) MT „SC Laura” (2001, Dalian New Yard, 109,000 dwt) at $14.5 mil by KGAL to South East Asian buyers rumored to be Indonesians. The price seems to be softer than average which is mostly attributed to the Chinese-built of the vessel and the nature of the seller / transaction, while a week ago, similar tonnage from the same shipbuilder achieved $23.5 mil collectively for MT „Beach 3” and MT „Beach 4” (2000/1999, Dalian New Yard, 109,000 dwt). The Japanese-built vessel MT „SC Sara” (2001, Sumitomo, 105,500 dwt) was sold at $17 million earlier this month to Singaporean-based buyers (Zodiac Maritime), a noticeable ‘premium’ for the Japanese pedigree of the vessel. The still Japanese built MT „Song Lin Wan” (2002, Namura, 106,000 dwt) has been sold by CSDC at $19.5 million to again Zodiac Maritime. For more modern tonnage, it has been reported the sale of Daewoo Hulls 5402 and 5403 with 2015 delivery for coated tankers (LR2) 115,000 dwt at $57 million each to US-based buyers.

As we have mentioned in the past, despite the increased buying interest in the crude tanker market, buyers keep being very price sensitive with strong preference for Japanese or Korean built tonnage, and usually for vessels built in a year starting with ‘2’ getting more of the attention. Given that most banks would not provide mortgage financing for older than ten-year-old tankers, independent tanker buyers paying cash have been very opportunistic on their approach, and any urgency in the sale or other transaction handling mishaps or limitations from the sellers usually end up costing a lower sale price.

The products and chemical tanker market has been selectively active as well, with focused interest in the coated panamax (LR1) tankers and MR pumproom design tonnage. The LR1 tanker MT „Holy Victoria” (2008, Minami Nippon, 75,000 dwt) has been sold at $29 mil to Greece based Prime Marine; the smaller and older MT „Moonlight Venture” (2006, Sumitomo (Yokosuka), 61,000 dwt) achieved $22.5 million by unnamed Greek interests.

MT BRITISH HARMONY

BP’s MR2 Tanker ‘British Harmony’ at anchor (Image source: shipspotting)

The MR2 tanker MT „St. Nikolai” (2005, Onomichi, 47,000 dwt) achieved $17.5 million by Indonesian buyers (technical details on the vessel are conflicting, but it seems she’s ‘pumproom design’ which would make her price in line with the market). The older but seemingly more sophisticated tanker MT „High Nefeli” (2003, STX, 47,000 dwt) achieved $15 mil by Greek buyers (Benetech Shipping). MT „British Harmony” and MT „British Chivalry” (2005, Hyundai Mipo, 47,000 dwt) were sold by BP at $19 each with bareboat back to the sellers for two years at undisclosed rate ($8,000 pd bareboat rate some wishfully well-placed reports mentioned) on an operating lease basis. MT „Topaz Express” and MT „Diamond Express” (2009, Minami Nippon, 45,700 dwt) were sold at $22 million each by Daichi Chuo to Island Navigation in Hong Kong. The older MR2 tanker MT „Hellas Progress” (1999, Hyundai Heavy, 46,000 dwt) has been reported sold by Latsco (London) Ltd. to West African interest at $10 million. For modern tonnage, publicly traded companies have also been active with acquisitions in the sector with Scorpio Tankers (Nasdaq: STNG) acquiring from Ceres Hellenic SPP Hull No S5126 on resale basis (2014, SPP, 50,000 dwt) at $37.10 million. Aspiring to soon to file for a public listing, Singapore based Navig8 acquired at $41 million each six MR2 tankers from Wilmar MT „Polaris” (2014, Hyundai Vinashin, 49,000 dwt) and sistership Hull Nos S401, S402, S403, S404 and S405 (2014/2015 delivery, Hyundai Vinashin, 49,000 dwt); the Scorpio acquisition seems to be in-line with prevailing market levels while the Navig8 acquisition seems to be a 10% premium to the market, which is especially interesting given that the shipbuilder is not considered top tier name.

MT TI EUROPE

Euronav’s ULCC ‘TI Europe’ taken for storage purposes by China’s Unipec at reportedly $25,600 pd for six months. (Image source: Shipspoting)

Crude oil has been trading in contango recently and a number of crude oil tankers have been reported chartered for storage, including Euronav’s 442,000 dwt ULCC MT „TI Europe” taken by China’s Unipec for six months plus options at $25,600 pd. The level of discount for present delivery of the commodity is still weak to justify a massive storage play and absorption of crude oil tanker supply from the market which hopefully would boost freight rates. The recent strength of the US Dollar reflecting the Fed’s statements about increasing interest rates in the US has had a negative impact of commodities, in part causing the contango, but making commodities less attractive as a storage medium, especially in an increasing interest rate (costlier) environment thus putting a limit to the storage play. On the other hand, increased refining capacity by Middle East refineries seems finally to be having a positive impact on larger product tankers (LR1 and LR2), a story hyped to ethereal existence for several years now. There are hopes that finally there will be impact on the market which could improve asset pricing. The waiving of export taxation on certain palm oil gradients by Southeast Asian countries, most notably Indonesia, in an effort to win market share on the world markets in a bumper crop season for palm oil, hopefully will have a positive effect on IMO III / veg oil chemical tankers.

Honestly, shipping can use all the help it can get in improving freight rates by contango and storage, to increasing refining capacity in Middle East, or fiscal strategy to move around record levels of vegetable oils.


© 2013-2014 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.