Friday, 20 July 12 HANDYSIZES PROVE RATHER ATTRACTIVE AMONG OTHER SHIPS, IN TERMS OF FUTURE RETURNS ON INVESTMENT - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The Handysize segment of the dry bulk market appears to offer the best incentive among other ship types, for a ship owners to invest in, says Intermodal in a recent report. After all, the question on everyone’s lips these days appears to revolve around the timing of their investment on the market, as well as which type, size and age of vessel to buy. In the report, Intermodal noted that “we can look at the available historic data, and indicators to plan our strategy accordingly. We take the view that the investment should have adequate remaining life ahead to give its owners the required return. As far as the timing of the investment is concerned, one indicator is the forward ship supply at any given time, which is simply defined as the current fleet plus the orderbook at a specific point in time” said the report.
It added that in the Handysize sector, “the forward ship supply as of July 1st 2012 is less than what it was one year earlier by more than 50 vessels. Combined with the fact that 45% of the fleet is over 15 years old we believe that the supply in this segment has started shrinking and modern vessels or new buildings of this size may be more attractive than other sizes. Looking at the supramax size, we see that while the actual fleet grew by more than 300 vessels the past year the forward supply grew only by 50 vessels showing that the fleet is close to peaking and will soon start shrinking too.
In the panamax size, the existing fleet grew by 170 vessels the past year and the forward supply grew by around 80 vessels, confirming the fact that the panamax/kamsarmax supply has not peaked and the 650 vessels that are still on order will have a significant impact on the market. In the capesize segment we also have seen the forward supply contracting due to the depressed market leading to strong demolition activity” said Intermodal. It concluded its argument by asking the important question: “As we come out from the oversupply quicksand, the question is 'will the demand be there at the exit?”
In any case, prices are far lower than in 2008, prompting ship owners to examine their options. In a recent report, Golden Destiny noted that the price for a 5 year old Capesize dry bulk carrier of 172,000 dwt has fallen to about $33,4mil from $42,9 at the end of June 2011, while at end of June 2008 was more than $153 million. This comes to show how much ship prices have fallen in the past few years, which favors new investors in the business. On the other hand, it has caused major headaches among existing ship owners, especially those who invested at the end of the growth cycle, i.e. during the 2007-2008 period. They are now facing huge problems, as they have to provide added collaterals on bank who financed the purchase of those vessels. It's also one of the reasons that banks are reluctant to lend again to the shipping industry, which has been deemed as a risky one, as a result of these past "extravagance" of prices. This has caused some banks to become ship owners these days.
The shipbroker noted “that second hand vessel prices have plunged during the first half of 2012, mainly in the large sized segments, i.e. the Capesize and the Panamax one. In the panamax market, data from the Baltic Exchange shows that a 5 year old vessel of 52,000 dwt is now worth about $22 million, from $27.5 million at the end of June of 2011, while at the end of June of 2008, the cost for the same ship was more than $75 million.
The report also noted that "in the newbuilding market, similar sharp declines in prices offered by major yards are viewed with investors being more conservative in the placement of new contracts as the instability of the freight market and the challenge of oversupply with upcoming deliveries are creating uncertainty for strong newbuilding investments. A capesize unit of 186,300 dwt reported on order in February this year at Shanghai Waigaoqiao of China for a price in the region of $49,8mil, while at the end of May 2008, a capesize unit of 176,000 dwt had been reported on order at Chinese yard, Zhoushan Jinhawaian for a price about $88,5million" it concluded. Source: Nikos Roussanoglou, Hellenic Shipping
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