Tag Archives: Sale & Purchase (S&P)

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.

Sale & Purchase (S&P), Newbuilding and Demolition Report – Trimester ending August 31st 2013 (Volume of Transactions)

Summers are usually the season of the year to be leisurely enjoyed at the beach and under the sun, especially for those in shipping who during the rest of the year are trying to make a living from an office far from the sea and the ‘subject matter’ of their trade. Business in shipping, like in many other industries, during the summer usually slows down meaningfully reflecting the people ‘missed in leisure’ and also the fact that people staying back in the office are either too junior to originate a position or otherwise opt not ‘rock the boat’ in any way at such time, unless it’s a real boat at the beach.

Sometimes however the boat rocks itself in the middle of the summer for the reason that no seasoned hands are at the helm when a wave breaks and light trading volumes amplify any market movements. In finance, it’s called the ‘summer curse’ as many ‘tragedies’ gestated or came to full fruition during summertime, from the blow up of the mega hedge fund Long-Term Capital Management (LTCM) and the related Russian and financial crises in the summer of 1998, to the mortgage securities and money markets freeze in the summer of 2007 which was the ‘dress rehearsal’ for Fannie Mae’s tremble in the summer of 2008 that precipitated the collapse of Lehman brothers in early September in the same year. We do not wish to be reminders of bad events that took place in the past. Far from us such intent.

Vessel Sales - Summer 2013

Vessel Sales – Summer 2013

The summer of 2013 can go down in history as rather robust as far as summer business is concerned. There have been about 200 transactions for the Sale and Purchase (S&P) in the second-hand market between the beginning of June till the end of August 2013, according to data compiled by Karatzas Marine Advisors & Co.  In the same period last year, there have been about 170 transactions, an increase in volume of about 17% y-o-y. The data were collected from market sources, private conversations and interviews, and publicly available info, and pertain to only five major asset classes: dry bulk vessels (including capes, iron ore, multipurpose, general cargo, open hatch, etc), chemical and product tankers (‘pumproom design’ and IMO-rated), gas carriers (including LPG, LNG, ethylene, etc),  crude tankers and containerships. Vessels in several markets were excluded from our calculations such as offshore assets, passenger, Ro-Ro vessels, etc

Vessel Sales - Summer 2012

Vessel Sales – Summer 2012

As one may suspect, the dry bulk market has been the most active with about 50% market share both for the summer of 2012 and 2013; however, in a surprising turn, August 2013 has been a very active month with twice as much volume as in June or July 2013. Obviously some buyers were not very diligent about enjoying their vacation time!

Demolition Sales - Summer 2013

Demolition Sales – Summer 2013

In the demolition market, on average 60 vessels (from the categories outlined above) for each of the three months were sold for demolition. Again, dry bulk vessels have been domineering the market with about 65% market share. We suspect that some of demolition sales reported in August 2013 may yet have to reflect the full reality of the market, the precipitous drop of the Indian Rupee (due to ‘de-coupling’ of the emerging markets and the concerns about India’s growing deficit).

Demolition Sales - Summer 2012

Demolition Sales – Summer 2012

The summer of 2012 had been busier in terms of demolition as about 20% more vessels were scrapped then than same period this year. This may be explained by the fact that freight rates this summer have been holding better than last year, especially for bulkers, and also, last summer, besides strikes and labor issues at the breakers’ yards, ‘the coast was clear’ from major problems like drastic currency fluctuations.

Newbuilding Contracts - Summer 2013

Newbuilding Contracts – Summer 2013

However, if the summer of 2013 was exceptionally good in any particular sector, that sector has to be newbuildings, as per graph above. About 280 newbuilding contracts were reportedly signed in these three months, 100 more vessels than the vessels scrapped in the same period. In a nutshell, three vessels per diem were contracted to enter the world fleet in the last three months than were exiting the market through scrapping. Has anyone mentioned that there is shipping crisis? One would never know from the pace of newbuildings!

Newbuilding Contracts - Summer 2012

Newbuilding Contracts – Summer 2012

The summer of 2012 was not exactly dead quiet on newbuildings, but at least in the summer of last year, about 50 vessels, on a net basis, left the world fleet than were contracted as newbuildings. If there is a ray of hope in terms of newbuilding enthusiasm, one may find solace that about 40 gas carriers were ordered in the summer of 2013, versus ten such tankers in the same period last year. Gas carriers overall seem as the most balanced market sector so far in terms of tonnage capacity and demand, and the sector looks better prepared to absorb such tonnage compared to any other sector.

© 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.