Cape Asset Pricing Improvement, for now

Cape Asset Pricing Improvement, for now                                                                                         Sale & Purchase Update, September 30th, 2013

The capesize market had a terrific last two months with freight rates briefly passing $40,000 pd recently for an eye-catching improvement of almost 300%.  As phenomenal such rates as they may be, one may even call them a ‘fantastic object’ as legendary investor George Soros might  say about a situation like this, unreal but immensely attractive; besides the obvious question on whether the freight rally is sustainable, there have been anxious inquiries on the impact of the rally on asset pricing, especially for modern capesize vessels.

We understand that the 2013-built at IHI (now called Japan Marine United after the recent merger with Universal Shipbuilding Corporation) 180,000 DWT capesize vessel MV „CAPE CHALLENGER 1” was sold last week at about $51 million. Although the owner of the vessel was a Japanese local company, we understand that the sale was controlled by Mitsubishi Corp as the Sogo Shosha. There are conflicting reports on the buyers, ranging from private Greek owners (Carras Hellas) to the publicly traded Navios Group (if the buyer is a publicly traded company we are sure to have the obligatory PR in due course.)  Also this week, the 2013-built at Hyundai Heavy (HHI) 173,000 DWT capesize vessel MV „JK PIONEER” has been reported sold, possibly to clients of Diana Shipping (DSX) at a reported price of $52-53 million. Sellers are Korean-based JK Maritime, and the solid price is partially attributable to ‘eco design’ of the vessel and very good ‘spec’ despite the below market charter-attached of about $11,500 pd for six more months (which, if true, would impacted negatively the price.)

A big ship! (Image source: Vale)

A big ship! (Image source: Vale)

These two sales indicate substantial improvement for modern cape pricing over the last few months based on a market comparison analysis. About a month ago, Belgium-based Bocimar sold their 2012-built by Hanjin Subic in the Philippines MV „BULK CANADA” at $41.5 million to Norway’s Berge Bulk; given the perceived ‘weak’ name of the shipbuilder in the marketplace, some discount is attributable to such fact. Shortly before that, in late July, Jinhai Heavy Industries-built / controlled 179,000-dwt Hull No J0021 with 2013 expected delivery was sold at a reported price of $38 million to reportedly Greek interests (possibly, Marmaras Navigation.) This vessel had been ordered in 2010, based on information from market reports at the time, on behalf of Fredriksen’s Golden Ocean concern with an expected April 2012 delivery, but accurate details of full-fledged newbuilding contract details, such as refund guarantees, down payment, etc are thin at least. In any event, both these older sales deserve a downward adjustment of a couple of millions due to their shipbuilding pedigree and the potential lack of any extra TLC provided during their construction; and, both of the current sales came from high quality yards and seem to be of good specification, at least of specification not seeing in the market that often from sale candidates.

Based on these sales, there has been an asset appreciation in play to the tune of probably more than 25% over the last two months (when adjusting for age, spec, quality of parties involved, reputation of shipbuilders, etc)  No bad for two months’ time, especially after the misery of the markets in 1H2013; and, again, freight improved by ten times as much in almost the same interval.  Based on our discussions with market players, we understand that several modern capesize owners were approached about the possibility of selling vessels, providing another sign that the sentiment, at least temporarily, has improved and underlying the ever stated argument that there are no good vessels for sale.

It will be interesting seeing how the market will develop, and whether the present developments in the cape S&P market are indeed signs of a cyclical recovery or just another ‘false positive’ temporary peak.  At least for the immediate future, the market is widely expected to take a breather with Golden Week underway in China – the mother of the cape market; also, the paper market (FFAs) have not softened in the last two weeks despite the improvement of the spot market (CAL 14, CAL 15 and CAL 16 trade at about $17,000 pd,) well below the spot market, although the paper markets in shipping often trade in backwardation.  And the drop over the last two weeks for HRC steel has dropped by $20/ton squeezing the margins for the steel mills.

© 2013 Basil M Karatzas & Karatzas Marine Advisors & Co.

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.

One thought on “Cape Asset Pricing Improvement, for now

  1. The Trade, Shipping and Finance Wizard

    Love your Blog
    Excellent text.

    Capesize and Slow Steaming

    About the Capesize, during a conference, it was mentioned by a president of Cargill COT that there is an 20% “hidden supply” in the vessel slow-steaming 20%, i.e if they speed up all the existing vessels, the market tightness goes away.

    June 2013 Baltic Exchange issued additional guidance to reporting panels: Standard ship vs how fast it’s going.

    http://www.balticexchange.com/default.asp?action=article&ID=8381

    When considering the prevailing timecharter market rate for the Baltic defined capesize vessel, panellists should assume that if steaming at 12kts laden/13kts ballast, the vessel will consume 44 tonnes per day (NDAS).

    The Chairman of the Baltic Exchange’s Freight Indices & Futures Committee Guy Campbell said:

    “This guidance does not imply any change to the index definition. Our timecharter rates are assessments of the prevailing market for the Baltic reference vessel on the defined route. Slower speeds are currently the norm, so we are providing panellists with the information they need to allow their assessments to accurately reflect the market.”

    Important note: the guidance concerns the capesize market and not the panamax market***.

    Most charterparties are protected by a special clause which in a certain way acts as a Cap on Daily Spot Prices paid by charterers when Fuel prices are high.

    The Baltic assessment for Paper Markets now considers slow steaming fuel saved in the Cape index calculation. This will allow the Cape basis (Spot minus Near Term Month) to move higher.

    http://jacquessimon506.wordpress.com/2013/09/20/panamaxcapesize-dry-bulk-ffas-spread/

    Simon

    Reply

Your comments are welcomed here...

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s