Spike in Capesize S&P reveals optimistic sentiment
This story originally published on Fairplay.IHS.com.
Over the past month some second hand Capesize prices have soared up to 38% for one Japanese built vessel during the last month as owners and traders expect a further firming of the bulk carrier market sector.
According to broker Allied Shipping in Athens, the Capesize market has seen the biggest second hand price increases at 30% higher than the previous month and more on some vessels of particular interest to buyers.
"Over a period of a year some ships bought for USD6 million in 2016 are selling at around USD11-12 million," said Allied Shipbroking's head of research and valuations George Lazaridis.
The upturn in the sale & purchase market follows what Lazaridis called the "worst year on record" for second hand ships. However, as rates have firmed this year some owners are taking advantage of the low prices. According to Lazaridis many Asian companies are buying Supramax vessels and North Europeans, normally listed companies are opting for Capesizes. Chinese owners are typically looking buying Panamax sizes and "far older ships," says Lazaridis.
Increases in the second hand market come in spite of the recent downturn, particularly in the Capesize market, which Lazaridis said had been "spooked" by the high inventories and unknown factors that have served to dampen market sentiment in late April, in particular the possibility that tariffs may be imposed on Chinese steel and steel products by the United States (US) and Europe.
"The correction in the market has not been that big and rates remain positive, but it has continued to drop for a few days," explained Lazaridis, but he said this is a regular occurrence that has come a little early and should mean that the upturn will also come a little early in late August.
One of the positive factors for the market is China's readiness to move for overseas resources, but that "internal discussions" within the US and the European Union as a response to Chinese subsidies on its steel products, which the west sees as dumping of cheap goods, maybe a significant factor.
In addition, IHS Maritime & Trade's latest Bulk carrier forecast suggests a significant increase in the volume of deliveries over the coming years and in 2017 in particular.
"Capesize fleet capacity is expected to grow by 7% in 2017-2022. This would translate into an extra 19 million dwt, which should push total fleet capacity to about 321 million dwt by 2022. There is a large orderbook in this segment as per the IHS Maritime & Trade database. There are still 131 Capesizes scheduled for delivery in the next few years, of which more than 90 are scheduled for delivery in 2017. Although not all of the ships are expected to be delivered as some cancellations may take place in the next 12-18 months," said the report.
Nevertheless, some investors are undeterred by these possible disruptions and have seen the scaling back of steel production in China as an opportunity. The so-called "operators" in the market will fix vessels at the going rate in the belief that they will be able to get premium rates on the spot market. It is a risky strategy agrees Lazaridis, but the appearance of the operators shows that there is a growing confidence in the market.
In addition, charterers of Capesizes have been seeking to fix vessels for extended periods of between 12 to 18 months, "last year the fixture rate was at between three and five months," said the broker.
"Owners are quick to fix vessels across the bulk carrier spectrum, but the discussions at the moment are that owners are not keen to fix at low levels while charterers will not pay the higher rates, so deals are being index linked to BDI (Baltic Dry Index) levels and are being averaged out on the spot market," explained Lazaridis.
The key feature for charterers is the price of the vessel, said Lazaridis, charterers are not bothered about the environmental friendliness of a vessel, unless the ship has a lower fuel consumption, which will save money, on the whole a ship is a ship and as long as it meets regulations and it can trade in regions that the charterer operates there is little premium to be had for environmental concerns.
The comparative firming of the Capesize market has had a knock-on, but delayed effect on the Handysizes which carry finished steel products. The Handysized sector is now the second largest element of the bulk carrier spectrum, Supramaxes have taken over the first position in terms of tonnage, but they are the "second link in the logistics chain.
In addition there was an expectation of a quick rally in the sector as grain silos filled in both the US and Ukraine, "but traders held back waiting for an increase in prices," Lazaridis said. He added that silos are full and there will be some movement over the next few weeks.
"Grain traders may take a strategic stance and release some cargo and then hold back as the price of transportation increases, waiting for prices to fall again," so the expectation is that Handysized ships will be in demand in the coming weeks and months.
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