Ship prices keep on falling, sales come early for ship owners
Ship prices keep on falling on the back of low freight rates. According to the latest report from shipbroker Allied Shipbroking, January sales seem to have come early this year, though there seems to be further discounts to be offered in the market once the New Year kicks off. “With such corrections being noted it’s worth taking a round-up of the price trends we have seen over the past 8 months since the market started its downward spiral. In particular, it’s interesting to go through the Capes and Panamaxes which have also been the ones noting the sharpest corrections, while reaching very interesting levels of late”.
George Lazaridis, Allied’s Head of Market Research and Asset Valuations, said “since April we have seen a radical decline in prices for second-hand vessels in both these size segments. The 5 and 10 year old Capes have shown a whopping 25% and 26% decline in prices during this period, reaching levels of around US$ 39.0 and US$ 27.5 mln, respectively. These figures become all the more noteworthy, as a newbuilding order could still set you back US$ 54 mln, meaning that you can snatch up a 5 year old vessel at 72% of the price of a new order, while a 10 year old vessel is at just under 51%”.
Lazaridis added that “things get even more enticing when you look at the Panamaxes, with prices for new orders set at US$ 30.0m for a Kamsarmax and US$ 29 mln for a Panamax (although the latter is hardly offered by shipbuilders any more), while prices for 5 year old Panamax-es are in the region of about US$ 20 mln and 10 year old vessels are going for around US$ 14.5 mln. Therefore, in the case of Panamaxes, 5 year old and 10 year old second-hand assets are currently going for a discount 39% and 50%, respectively, when compared to the price of a new order, while the difference becomes even bigger when compared to the cost of ordering a Kamsarmax. This has largely been due to the faster pace correction in second-hand Panamax prices during these past eight months, as we noted a 29% decline in 5 year old assets and an impressive 37% decline in 10 year old assets”.
The shipbroker’s analyst raised the question of what does this all mean and where should buying focus be centred on next?
According to Lazaridis, “the truth is at the moment and as things stand it makes more sense to go for second-hand assets when looking purely on the price being paid. There are, however, many out there that will say that these newbuildings are not comparable in design features to the older tonnage, while their payment terms are more favourable during the current poor performing freight market. That may well be beyond the underlying point though, as both asset classes are still well above where they stood in late 2012 when the market had reached its most recent bottom”.
Meanwhile, “at the same time further discounts could easily be seen in second-hand tonnage, as there is no real barrier preventing further price drops and with things becoming more difficult in terms of earnings, we are surely to see further discounts down the line. In the case of newbuildings though things are a bit trickier. Despite the intense competition amongst shipbuilders to secure the interest of any perspective buyers, they have barriers preventing them from offering discounts which are “too low”.
The main ones are construction costs and ease of finance. With steel prices having declined considerably and looking to remain under pressure in the near-term, the first barrier shouldn’t be too difficult to overcome. The latter, however, is a bit more problematic. Shipbuilding finance has already faced significant problems during the first half of the year, and it looks as though it will be even harder for shipbuilders to assist in finance and guarantee letters for their offered ships if their margins are lacking. As such, it seems that we are primed for perfect conditions to promote second-hand tonnage in the New Year and with all this interest mounting, one becomes curious to see at which point the starting pistol will be fired to spark off another second-hand buying spree rally”, the shipbroker concluded.