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S&P, Newbuilding And Demolition Update (November 25th, 2013)


A short while ago when shipping was in a real vertigo (let's say about a year ago when no many asset classes in shipping were making more than $10,000 pd on the spot market), it was euphemistically said that we were living in 'interesting times'. We just never thought how 'interesting' the times could get!


Beauty …

In the past week, on the back of a recent strong improvement in VLCC rates, it has been reported that entities affiliated with the Marinakis Group in Greece have acquired the 2014-scheduled-delivery VLCCMT „SHANGHAI SPIRIT" (320,000 dwt, SWS, 2014) at just below $90 million. It was reported that several strong buyers had shown serious interest in the Wah Kwong vessel, and thus the strong price. It has been also reported that interests associated with the Scorpio Group have or are about to contract four VLCCs at S Korea's DSME at prices above $90 million each, with the earliest vessel delivering in Q1 2015. Also, it has been reported that DHT Tankers (DHT has filed on Monday to raise $110 mil from the public markets without specifying yet the use of the proceeds) and Navig8 have or about to have contracted ten VLCCs between them. And, there has been some clarification that the previously conversion-driven sale of the MT „SHINYO NAVIGATOR" (300,000 dwt, Hyundai HI, 1996, 42,448 ldt) was actually a demolition sale at the strong price of $440/ldt ($18.7 mil), just because the market cannot tolerate seventeen-year old VLCCs and their drydock of a few million dollars is not a risk-reward favorable investment. And, if it's 'embarrassing' for seventeen-year-old VLCC heading for the scrap heap, let's not forget that just two weeks ago the Fredriksen group sold two younger VLCCs for scrap, actually one of them built in 1999 (MT „GOLDEN VICTORY"300,000 dwt, Hitachi Zosen, 1999.) It's an interesting market indeed when year-to-date VLCC rates have averaged below $15,000 pd, despite the recent improvement to $50,000 pd, when 15-year-old VLCCs are too old to pass their special survey but there is solid appetite for newbuildings at the $90 million level, implying that with 100% utilization and zero leverage, the vessel has to earn $27,000 pd on average just to recoup the investment.

In the product tanker market, it has been reported that the Greek-controlled LR2 tankerMT „MAKO" (105,000 dwt, Samsung Heavy, 1998) has been sold to Chinese buyers at the in-line-with-the market price of $10.5 million. The two sistership LR1 ice-class 1A tankers MT „PERSEVERANCE" and MT „AFFINITY" (73,800 dwt, STX, 2005) have been committed at a market related $24.7 million, each to Greek buyers.

In the dry bulk market, there has also been strong buying interest from private owners, notably from Greek private owners and also Asian interests. The Japanese built and evocatively named MV „GRAND DIVA" (76,500 dwt, Imabari, 2007) was sold to Greek buyers at a very respectable $21.5 million, while the comparable vessel MV „MULBERRY PARIS" (76,500 dwt, Tsuneishi, 2004) was acquired at $19.5 million from buyers believed to be from Greece, again. The Japanese-built handysize bulker MV „VENUS OCEAN"(33,500 dwt, Shin Kochi HI, 2013) was sold at a very respectable $22.5 million to private Greek buyers. Overall, the pace for transactions in the dry bulk market has softened recently, which is primarily due to lack of high-quality modern sale candidates, where most of the emphasis has been placed by operating shipowners when there is little relief in debt financing from the banks, at least not yet.

The newbuilding market remains very robust, where besides the VLCC orders mentioned earlier, there have been orders of at least six VLOCs/Newcastlemaxes by Kara Shipping at Beihai Shipyard and Foremost Maritime and Winning Shipping at Nantong Cosco KHI. Of course there have been a few more orders for smaller dry bulk vessels and also containerships, but who bothers with the little stuff when the big-ticket items draw all the attention?

… over age? (Image source: AFP PHOTO/Farjana Khan GODHULY)

In the demolition market, pricing seems to be improving solidly; first, the decent / strong freight markets have made several owners to postpone the inevitable, while the offer of sale of modern, high value vessels like the MT „SHINYO NAVIGATOR"(Pakistan sale) has pushed the market upwards. In the last month, demolition prices in the sub-continent have improved by about 10% as now tankers command about $430/ldt while bulkers range at about the $400/ldt mark. To the extent that the Reserve Bank of India (RBI) and its recently elected governor Prof Raghuram Rajan manage to stabilize the currency (NYSEARCA:INR) at 65/US$ or below, there is legitimate hope that the demolition market could move higher, at least in the near term.

Again, who ever said that shipping is not an interesting industry?

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

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.