Why dry bulk indicators suggest a positive outlook for investors (Part 2 of 8)
Ship prices are an indicator that helps investors gauge bulk vessels fundamental prospects. Broadly speaking, you can break ship prices down into newbuilds and second-hand vessels. Newbuilds reflect an expectation of future rates, since it can take three to four years to construct a new dry bulk vessel. Second-hand vessels show nearer-term fundamentals.
For bulk carriers, Capesize, Kamsarmax, and Ultramax vessel prices in July 2014 have been consistent at previous month levels of $54 million, $30 million, and $28 million, respectively. Meanwhile, Capesize vessel prices have increased from December 2013 levels of $53 million.
Current levels are either consistent or have recorded increases in dry bulk rates. This indicates a sideways trend in the short term, making shipping companies also trade sideways.
Bulk carrier vessels
July remains a seasonally slow month in the newbuilding market. Freight rates have fallen significantly for most of the month due to the usual summer lull . Also, sales activity has—as expected—been low in the bulk carrier space. RS Platou estimates that it’s realistic to expect stronger tonnage demand over the upcoming months.
Analyzing reported sales, you see the downward pressure on values is evident across all segments. But RS Platou estimates an increasing number of inspections compared to the previous month. This shows that the recent price correction may again spark buying interest in light of a more positive outlook going forward.
Impact on dry bulks
If prices continue to rise over the next few months or quarters, the Guggenheim Shipping ETF (SEA) and dry bulk shipping companies like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Navios Maritime Partners LP (NMM), Navios Maritime Holdings Inc. (NM), and Safe Bulkers Inc. (SB) should benefit.
Browse this series on Market Realist:
- Part 1 - Why dry bulk orderbooks are rising for companies like DryShips
- Part 3 - Why dry bulk companies saw 5-year and 10-year ship prices rise
- Part 4 - Why a drop in China’s real estate sales affects shipping companies