New Capesize price jumps most in 5 years, positive for dry bulk shipping stocks
Why ship prices (values) matter
Ship prices reflect the current and future fundamentals of the shipping industry’s supply and demand balance. When shipping rates are expected to rise, a reflection of strong demand to supply, shipping companies place more orders with ship construction companies. As demand for new ships rises, prices also rise. So ship prices often reflect future shipping rates. In some cases, shipping companies may purchase old ships in the secondary market if they believe shipping rates will rise sooner than it takes for construction companies to deliver their ships.
Capesize vessels jump $4 million
Based on the latest information available from Simpson Spence & Young, the world’s largest independent shipbroking group, prices for new-build Capesize vessels, the largest class of ships that mainly haul iron ore and coal across ocean, in China jumped from $43 million per vessel in April to $47 in May. This is a record increase in five years and a positive indication of future Capesize shipping rates. Prices for new ships have been falling since 2008, as several companies stopped going to the backyard to place additional orders, seeing that they’ve overbooked them and that shipping rates were collapsing due to the financial crisis. To put this into perspective, dry bulk shipping capacity have grown 62%, while shipping rates for Capesize ships have fallen more than 90% since mid 2008.
Prices for new-build Capesize vessels are now turning around, as managers have returned to purchase new ships (see Managers continue to order ships, long-term supply and demand balance favorable) in anticipation of higher shipping rates and tighter supply and demand balance in the near future. Its sister indicators, those that track 15-year-old prices, are also turning up (see Ship prices rise to 8-month high, supporting dry bulk shipping recovery), which is further evidence of a shipping recovery and which supports the view that shipping rates will be higher towards the end of this year as well as next year. This would be positive for dry bulk companies such as Diana Shipping Inc. (DSX), Safe Bulkers Inc. (SB), Navios Maritime Partners LP (NMM), Knightsbridge Tankers Ltd. (VLCCF), and DryShips Inc. (DRYS) in the medium to long term.