Broker SSY has been studying the disconnect between earnings and secondhand asset values in the bulker market, something it believes will continue next year and beyond, thanks in no small part to shipyard capacity utilisation.
Given continued strong newbuild demand across the shipping markets, SSY expects newbuilding prices to remain fairly insulated from the short-term gyrations of individual segments. Shipyards now have the luxury to sit out any cyclical weakness for a couple of years without needing to lower their prices materially, SSY suggested in a monthly report.
SSY suggests cape resales and newbuilding costs have now reached parity, and more remarkably Japanese and Chinese yards cape newbuild prices are almost at parity.
“S&P volumes on the older side have held up well as the perceived value, relative to newbuilding and modern secondhand vessels, looks much more competitive,” SSY noted, concluding: “All told, there are good reasons to believe that the gap between asset values and current earnings will remain.”
Asset values were discussed at length at this year’s European edition of the Maritime CEO Forum held at the Monaco Yacht Club.
Tim Huxley, who heads up Mandarin Shipping and moderated the event’s dry bulk session, noted: “We have current newbuilding prices reaching levels which make them unviable especially when combined with the forward delivery now being quoted and is the consolidation we’ve seen amongst the shipbuilders going to allow them to keep prices high. Could shipbuilders suddenly get addicted to profitability?”
Milena Pappas, commercial director at Star Bulk and head of Oceanbulk, observed that since January 2021 newbuilding prices have gone up 50%, secondhand values have gone up “more or less” 90 to 100% whilst freight has gone up just 40%.
“So that’s a factor right there, putting up a stop for newbuilding orders,” she said. “The other one is shipbuilding capacity. The fact that it’s full for the next three and a half years.”
Such a wait for a newbuild – the equivalent of a whole cycle – means owners have no idea what the market will be like when the ships deliver, potentially without all the inefficiencies and black swans being experienced today, Pappas warned, going on to add that since around 50% of all ships on order today are dual-fuel using engines that take three times as long to test.
“There’s going to be a slipppage because of the engine supplies,” Pappas predicted, something that is coming to light as the year ends with owners deciding to switch engines due to scarce supplies.
The disconnect between earnings and secondhand asset values is also being detected in the tanker sector.
“Tanker sales continue to only trickle through quite slowly as the market takes time to readjust to this mismatch between a slightly underwhelming freight market and high prices,” broker Hartland Shipping stated in its latest weekly report.
With the exception of the still bullish container sector, the sale and purchase markets have quietened down in the opening 13 days of December.
“It feels like people are limbering up for hols and buyers will wait for pricing to come down and sellers don’t want to sell into a flat market,” one Asia-based broker told sister title Splash Extra earlier this week.
