Vessel prices fell in July and August, but may not be negative

Market Realist

Dry bulk shipping advice and updates, September 13–25 (Part 10 of 11)

(Continued from Part 9)

Panamax stabilizing, Handymax and Supramax rising

For the first half of 2013, vessels prices for all three major classes of dry bulk ships, Panamax, Supramax, and Capesize, have been rising. Prices for 15-year-old Panamax vessels rose from $8 to $10 million, while equivalent Supramax vessels rose from $7 to $10 million, and Capesize from $13 to $14.5 million. But over the past two months (July and August), we’ve seen Capesize prices fall from $14.5 million $14 million. Supramax and Panamax had both pulled back from $10 million to $9 million.

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Dry Bulk Vessel Prices (15 Year Old) 2013-09-25

The significance of shipping vessel prices

The price of a 15-year-old vessel is an important indicator that reflects the health of the shipping industry. When shipping rates are expected to rise, the price of vessels also rises. Buyers who are expecting higher rates are willing to pay more, and sellers who expect rates to rise will only sell prices at a higher price. Of course, if rates are expected to fall, then the future profits that the ship can generate will also fall. This can have a negative impact on the value (price) of ships.

Vessel prices generally trend with shipping rates

Because 15-year-old ships sell in the secondary market, price movements in these ships reflect more of a short-to-medium-term outlook (see the chart below). When supply growth began to outpace demand growth in mid-2010, driven by deliveries of a record number of ship orders placed before the financial crisis and lower year-over-year growth in the dry bulk trade, ship rates began to fall. The prices of 15-year-old ships followed suit.

Baltic Shipping Index by Ship Class 2013-09-25

 

Wait-and-see mode

The recent decline in vessel prices is something to look out for, because it could say something negative about the short-to-medium-term outlook for shipping rates. Nonetheless, this could just be a short-term pull-back. As long as the uptrend remains intact, the indicator reflects a positive outlook for shipping companies like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Navios Maritime Holdings Inc. (NM), Navios Maritime Partners LP (NMM), and Safe Bulkers Inc. (SB). With other indicators showing positive signs, perhaps it’s best to apply a wait-and-see approach to this indicator. Besides, prices for new builds are showing encouraging signs.

Continue to Part 11

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