Sale & Purchase, Newbuilding and Demolition Market Overview

Sale & Purchase, Newbuilding and Demolition Market Overview (October 13, 2013)

The decline of freight rates and of the BDI notwithstanding later in the week, hope springs eternal that shipping is at the first stages of a cyclical recovery.  It’s to be seen at which phase of the cycle we are in, but for now let’s all enjoy what the market brings!

The momentum continues in many markets, capital markets and private markets, and the volume of sale & purchase transactions has been rather robust; also, asset prices have been showing signs of improvement (please see our last report on capes from last week), or at the very very least, holding steady.

For tankers, ‘year of built’ 2000 has become a psychological barrier, with tankers built prior to that getting definitely stigmatized as “bad” (read, priced at scrap-related levels), anything built after 2000 but newer than ten years seen as “ugly” (for the sellers that is, but rather fertile for a ‘value-deal’ for the buyers, in our opinion), and anything newer than ten years perceived as “good”.  And if one is in need to differentiate further, vessels on order are the best (“pretty ladies”, as the saying goes.)

The pumproon-design product tanker MT „UNIQUE SUNSHINE”  (47,000 dwt, 2001, Onomichi) was sold at $12 mil to Greek interests (“ugly”), while slightly smaller but newer MT „PIONEER SUNSHINE” (46,000 dwt, 2004, Shin Kurushima) was sold to Greek interests, again, at $17 mil (“good”). There has been definite price improvement (and robust activity) over the last few months for this asset class, as in May the good vessel MR „HALLINDEN” (46,000 dwt, 2008, Shin Kurushima) was sold at just excess of $20 mil to Greek interests, again.   Four modern, high quality aframax tankers (but of narrow beam) built at Sasebo H.I. in 2007 & 2008 were sold from clients of Cido Shipping (Japan) to Zodiac Maritime (Singapore) on private terms, at a price rumored to be about $104 million (between $25-27 mil per vessel); with about $52 million replacement cost, this is a “very ugly” transaction despite the age and pedigree of the vessels, but we suspect there is more to it than it meets the eye, given the nature of the buyers and sellers.  And, speaking of “very ugly” transactions, the Daewoo-built in 2003 VLCC MT „BW LUNA” was sold to an active recently Indonesian buyer, Soechi Lines, at $36 mil (as a matter of comparison, less than four years ago, such vintage vessels were well in excess of $50 mil).  However, there has been improvement given that a sistership vessel MT „BW LUCK” was sold at $35 mil earlier in the summer. The theme with crude oil tankers these days is that their market is so bad that it cannot get any worse (“don’t get no respect!” in the immortal words of Rodney Dangerfiled), which is a nice and soothing line, but not a great investment thesis…so, we have been a bit surprised by the rumors that a major VLCC fleet acquisition may be in the works based on the logic that …things in the crude tanker market cannot get worse… try to keep this mind (and a long balance of working capital to maintain the position)… but things, otherwise, like will not get worse.

The dry bulk market with its longer tail of charterers and more flexible standards overall (compared to tankers) has been active too, with Japanese-built resales of Kamsarmax tonnage committed to Greek buyers in excess of $31 mil. The fifteen-year old MV „ORIENTAL SUN” Japanese-built panamax bulker was sold just below $11 million, while the ten-year old MV „SEA OF GRACIA” panamax built in Japan was sold at just below $17 million (in en bloc deal with MV „SEA OF HARMONY”; we understand that the vessels were no exact sisterships.) And, in the ever surprising cape market, the 1997-built at IHI in Japan cape MV „SU-OH” was committed at $16.5 million.  The “ugly” bunch in this market may have more wind in their sails by virtue of the nature of their trade.

The showstopper however has been the newbuilding market where, honestly, we have lost count of newbuidings recently; just the broader news, Scorpio Bulkers (SALT) has announced orders in the magnitude of $400 million, and a reference name Greek owner cape / VLOC orders in excess of $1 billion. A few more orders for several MRs from Navig8, several post-panamax 10,000 TEU containerships (ULCVs), a few more Newcastlemax orders by the Oldendorff Group in Germany, etc, etc  We understand that most S. Korean and good quality Chinese yards are solidly booked till end of 2016, and several Japanese builders have managed to pick up orders from international buyers over the last six months.

World Economic Growth Revisions (Graphs from the Financial Times, Oct 8, 2013)

For someone having tangential knowledge of shipping, the active orderbook would imply that things in shipping are great.

However, just last week, the IMF lowered forecasts for economic growth in 2012 to 2.9% (the lowest post-crisis) and 3.6% in 2014 on ‘subdued medium-term growth trajectory’ expectations. And, for September, Chinese exports dropped unexpectedly by 0.3% year-over-year against expectations of 6% growth, it was announced by the Customs Administration over the weekend.

Full steam ahead! 2008, here we come again in a boatload of newbuilding orders!

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

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