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Dry bulk newbuilding prices at all-time lows, as investment starts to make financial sense for risk takers

Date: 19/09/2016

The current newbuilding market isn’t one for risk-averse ship owners. By contrast, those more inclined to placing their bets on a recovery, or even in firmer demand for resales, might be tempted to invest in a dry bulk newbuilding, even at today’s dire market conditions. In its latest weekly report, shipbroker Intermodal noted the fall in prices, which can be seen as a signal for ship owners with high liquidity, willing to take the plunge.

According to Intermodal’s SnP Broker, Mr. Panos Tsilingiris, “in real dollar terms, newbuilding prices are currently at historical all-time lows. In regards to dry bulkers, there is essentially no newbuilding market due to the steep discount of newbuilding resales versus ‘new’ newbuilding contracts. For example, Chinese Cape resales stand at rgn $33m while no yard can quote less than low $40m’s for newbuilding. Newbuilding prices are well into all-time inflation-adjusted lows. For instance, in 1985 at the absolute nominal nadir, Panamax Bulker newbuildings could be contracted at $13.5m which translate at $30.2m today’s dollars. This is low enough for investing because it is substantially below the true cost of creating the underlying asset and the current NB resale prices benchmark a nominal 15-year low vs newbuilding prices, a metric that appears unbeatable for several investments including shipping”, Tsilingiris noted.

Meanwhile, according to Intermodal’s broker, “tanker newbuilding prices are also depressed but at least there is a thin market with several LOIs placed and fewer actual contracts. Interestingly, in nominal terms we are well below the 2012 lows, one of the worst tanker freight years in modern history. This can be attributed to the deteriorating lack of financing and outlook on the segment. Tanker newbuildings will eventually become a buying opportunity since second hand vessel prices have been correcting but not any close to the dry bulk levels (the last is tanker owners’ worst fear)”.

Tsilingiris added that “shipbuilding prices are moving towards the bottom while will remain low for some time -unless something spectacular occurs in the freight market- due to government subsidies, over-competition, low commodity prices, currencies devaluations, lack of financing and the yards resolution to accept loss-making orders to keep the production line going. On the other hand, the substantial downsizing of shipbuilding overcapacity, the emergence of government-backed NB contracts, certain attempts to cartelize pricing (see, Korea) and regulatory developments constitute major resistance levels. All in all, the prevailing dry bulk newbuilding resales represent an attractive entry point. The ongoing correction in tanker newbuilding prices, which are already well-below the 2002 crashed prices in real dollars, will eventually lead to excellently timed orders. Hopefully over-ordering this time will be avoided thanks to lack of financing and the recent/ongoing traumas”, he concluded.

Meanwhile, in the newbuilding market this week, Intermodal noted that “spikes in ordering activity like the one witnessed during the past week have more than once taken us by surprise this year. The number of contracts coming to light recently is in fact overwhelming, while the fact that the great majority concerns tanker vessels of substantial dwt is certainly reinforcing the firming trend in similar activity witnessed during the past weeks. The performance of freight rates on the tanker side is certainly not explaining this recent ordering rush, while the fact that orderbooks for a number of Tanker sizes have been considerably swollen during the past two years seems to not be deterring at all those owners contemplating the idea of placing an order. So what is it that effectively lures owners back to the yards? Exceptionally low newbuilding prices without a doubt together with the hope that by the time of the actual delivery these vessels will have substantially gained in value, a hope that if it does get fulfilled it will allow history to repeat once more and once again lead to an oversupplied market. In terms of recently reported deals, Singaporean owner, Eastern Pacific, has placed an order for two firm plus two optional Aframax tankers (115,000dwt), in Hanjin in Philippines, for a price of $42.5m each and delivery set to start in 2018”, the shipbroker concluded.

Source: Nikos Roussanoglou, Hellenic Shipping News Worldwide

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