Why stable ship prices support the crude tanker industry

Khyathi Dalal
August 8, 2014

Overview: Why dry bulk indicators are gaining firm ground (Part 4 of 7)

(Continued from Part 3)

Stable ship prices

Ship prices are an indicator that suggest investors gauge bulk vessels fundamental prospects. Broadly speaking, ship prices can be broken into newbuilds and second-hand vessels. Newbuilds reflect an expectation of future rates, since it can take up to three to four years to construct a new dry bulk vessel, while second-hand vessels show nearer-term fundamentals.

Newbuild prices

According to RS Platou, an international ship and offshore brokers and investment bank, bulk carriers, Kamsarmax and Ultramax prices in July, 2014, have been consistent at $30 and $28 million, respectively. Also, capsize vessel prices have remained consistent at its previous month levels of $54 million. Current levels have remained consistent or have recorded an increase in its dry bulk and tanker rates.

Total dry bulk fleet grew 4.9% to 738.4 million deadweight tons (or dwt) with capsize vessels recording 4.4% growth and 7.6% recorded by Panamax or Kamsarmax vessels. Also, the Post Panamax vessels recorded a 7.6% growth, while Handymax or Supramax recorded 4.8% growth.Year-to-date (or YTD) deliveries in 2014 stood at 25.3 million dwt.

Bulk carrier vessel outlook

Seasonally, July remains a slow month in the newbuilding market with freight rates falling significantly during most of the days of the month. High Chinese inventories of iron ore and coal reduced import activity and there was a negative effect on the markets.

However, looking ahead, seasonally proven stronger tonnage demand is expected in the upcoming months. Also, the market is experiencing an increasing number of inspections compared to June, 2014, which thereby suggests that the recent price correction may lead to a spark in buying interest amid a more positive outlook.

Impact on dry bulk

Vessel prices upward or consistent, the Guggenheim Shipping ETF (SEA) and dry bulk shipping companies like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Navios Maritime Partners LP (or NMM), Navios Maritime Holdings Inc. (NM), and Safe Bulkers Inc. (SB) would likely be affected positively.

In the next section, we’ll discuss how China’s crude steel production has performed.

Continue to Part 5

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