Newbuilding orders proof of optimism

The figures are in, and significant growth in dry bulk newbuilding orders in the year to date validates increased positivity in the dry bulk sector. Speaking to The Baltic Briefing, a spokesperson from ship analyst VesselsValue said that 2017 had seen something of a revival with regards to newbuilding in the dry bulk field: “Dry bulk orders for July and August alone have already surpassed the first half of 2017, by number of vessels.

“Orders by US dollars on a year-to-date basis are up 133% on 2016, with a total spend so far of $3.4bn for 2017.”

The research company’s data for dry bulk vessel orders testifies to an improvement in activity in comparison with 2016. While the highest number of dry bulk vessels orders placed in any one month in 2016 was nine, July 2017 saw 48 orders placed, and a further 34 were placed in August.

The spokesperson also explained that the past two years have seen highly volatile bulk carrier values.

“Hitting a historical 25-year low in early 2016, they have nearly rebounded to the values achieved in September 2015,” they said.

Steady rise on average

VesselsValue added that general vessel prices are rising slowly, noting that panamax and handysize newbuild contract prices have been steady over the past month, whereas supramax and ultramax prices have slightly softened. However, capesize newbuilding prices saw a boost of about 8% in this period.

“Prices have reached their highest point in 21 months signalling that there is positive sentiment and a good appetite for dry bulk going forward,” the spokesperson explained.

The trend for increased newbuild orders is set to continue, in line with improvements in spot freight rates. “Dry bulk newbuildings are increasing due to positive sentiment driven by the spot market,” VesselsValue said. Citing spot rate figures from August last year until the end of this August, they explained that the data “shows considerable firming in spot market rates since the end of July and beginning of August.”

Just as the amount of recent activity in the dry bulk newbuilding sector has increased, the secondhand sector has also picked up. Examples include the 75,000 dwt 2012-built Privatlantic selling for about $18m and an en-bloc $80m deal made for four 63,000 dwt, 2015-built ultramax vessels – Tiger Tianjin, Tiger Zhejiang, Tiger Hongkong and Tiger Beijing. Concerning mid-age tonnage, Ocean Leader sold at $14.5m.

The Baltic Sale and Purchase Assessment Index – which reports prices for secondhand bulk carriers of at least five years old –  shows that for the last six months, vessel prices have plateaued following a steep climb. Data for the index for the last two years shows that after a drop in prices, vessel costs began climbing from February 2017, with prices for all types of ships having improved in some form this year.

Unusual August activity

The improvement of dry bulk earnings in what is traditionally the quieter month of August has given confidence to owners who have been considering placing a newbuilding order. Expectations are for the last quarter of the year to be even firmer – good news for S&P brokers. All routes for the Baltic Exchange Forward Assessment for capesizes show an increase through to the end of 2018.

The emergence of new financing structures has been partially attributed to the growth in both newbuild and secondhand prices, as has an uptick in the marketing efforts of the larger shipbuilding yards. Ship financier Danish Ship Finance said in its interim report for H1 2017: “The phasing in of already adopted and upcoming banking regulation should, other things being equal, point to higher borrowing costs for shipowners. However, with competition remaining quite strong, prices have not changed to any noticeable extent in recent years.

“Many of Asia’s export credit institutions are still quite competitive in the market for financing newbuildings from the countries of their origin.”

Commenting on its loan portfolio, the organisation said: “Measured in lending currencies, Danish Ship Finance expects a small loan portfolio increase in the second half of 2017.”

Muted confidence

VesselsValue remains somewhat confident about the future for the dry bulk newbuilding industry. The spokesperson told The Baltic Briefing: “We believe the revival [in the dry bulk newbuilding sector] will continue as long as the spot market remains buoyant.”

However, the spokesperson also highlighted some of the factors that may impact upon future bulk carrier newbuilding activity: those of “[the] number of Chinese yards remaining in business”, “scrapping levels” and “general demand; specifically Chinese iron ore demand”.

Danish Ship Finance echoed the word of caution saying that the market is “by no means stable and could quickly lose momentum”.

In its latest report, the organisation noted that, despite positive developments for the future of the shipping industry, such as more scrapping of older vessels due to the implementation of new environmental requirements for ships, “the slightly positive outlook is dimmed by the excess supply of tonnage currently weighing on most vessel segments.

“Consequently, if the market is to return to a period of even acceptable earnings, it is pivotal that the inflow of new orders is kept to a minimum in the next few years.”