Flood of Newbuilding Handymaxes to Push Secondhand Prices Down 20%

14 Markets Thursday August 19, 2010 Lloyd’s List Handymaxes Flood of newbuilding handymaxes to push secondhand prices down 20% Increased chartering competition set to hit Eagle Bulk hit earnings and asset values in next two years by value drop MICHELLE WIESE BOCKMAN NEW York-listed Eagle Bulk Shipping is the third-largest owner of handymax SECONDHAND prices for handymaxes are tonnage and one of the most affected forecast to tumble by 20% in the next two by any further slump in asset values, years, as a deluge of new ships combined writes Michelle Wiese Bockmann. with uncertain Chinese demand for bulk Eagle Bulk’s fleet of 38 modern commodities further depresses time supramaxes averages 4.6 years and charter rates in 2010 and beyond. most of the ships are fixed against long- Second-half handymax bulk carrier term time charters. But the company earnings could also drop by as much as paid $1.1bn for 26 newbuilding 40% from first-half levels, and fall further supramax vessels in July 2007,which in 2011, based on fresh analysis from one have been progressively delivered since of the world’s leading shipping banks, then with the final ship hitting the DVB Group. water in 2012. The largest group of geared bulk With an average price of $42.3m carriers in the global fleet, the world’s each, these vessels have each lost 1,700 handymax vessels of between $6.3m in value, and the fleet $163m in 40,000 dwt and 60,000 dwt, are viewed as total, based on the current price for a the most flexible, able to carry a range of prompt re-sale Chinese-built supramax dry cargoes from port facilities. of $36m. A further 20% fall in value This versatilty has meant these ships over the next two years, as DVB Group are viewed as less reliant on the iron ore The 1991-built handymax product tanker Salamina: prices for secondhand handymaxes could fall by 20% in the next two years. forecasts, will shave another $189m off and coal trades than larger panamax or total secondhand prices. capesize bulk carriers, and therefore But second-half earnings in 2010 will with a further 275 scheduled for the rest of because of slowing demand and This would mean the overall fleet sheltered to a greater extent from the now fall to just above these levels, and the year, although some may be delayed. increasing supply returns to haunt was worth $750m, far less than the market volatility that has beset larger bulk average between $15,000-$17,000, On top of that, a further 69 handymax owners,” the report said. $1.1bn price tag paid three years ago. carriers over the last two years. according to DVB Group. newbuildings of 3.85m dwt have been “With a slowdown expected in freight Although Cosco and China Shipping But the bloated newbuilding orderbook “For 2011 even more newbuildings than contracted in 2010. earnings, handymax prices are expected to Group are the two largest owners of is now placing pressure on rates in both in 2010 are expected, thus the handymax The overall gloomier scenario would in come off as well in second-half 2010, handymax tonnage, Cosco’s owned time charter and spot markets in the earning capability is unfortunately turn reverse a rise in secondhand values however on average they may still end up fleet numbers 113, but has an average handymax sector. expected to reduce further,” said DVB for five-year-old vessels, which rose from marginally higher than in 2009. age of 13 years. In the first half of this year, handymax Group’s Bulk Carrier Market Outlook- $29m in 2009 to average $33m so far in “In 2011 and 2012 as more newbuildings This suggests many were not one-year time charter rates averaged Handymax, written by Research & 2010. This value has now surpassed the enter the market, we expect handymax ordered or acquired at high prices. $22,200 per day, while earnings on the spot Strategic Planning’s shipping division. price of Chinese newbuildings, now at prices to pull back by about 20%.” China Shipping Group’s 41 handymax market averaged $25,700. This was much Some 129 new handymax vesssels of $28.5m, according to brokers. More than 330 bulk carriers were sold vessels are also more elderly, wth an higher than average one-year time charter 7.3m dwt have entered the fleet in the first “However we believe this premium will in the first half of 2010, including 91 of average age of 10 years. n rates in 2009 of $14,700 per day. seven months of 2010, according to DVB, be short-lived as pressure on freight rates handymax size. n Tankers VLCCs Maersk Tankers up Middle East VLCC spot rates to stay depressed VERY large crude carrier owners hoping crude to Japan, time charter equivalent longer voyages to Japan and saw the IMPROVED energy markets have seen Revenue fell from $622m in the first half for strong fourth quarter spot market earnings averaged $12,040 per day, down benchmark route slip down to W58.4 Maersk Tankers return to profit in the first of 2009, to $579m. But depreciation, earnings to balance current poor returns from $19,528 in July and $56,927 in June. yesterday, or $20,019 per day, compared to half of 2010, stemming the flow of red ink amortisation and impairment losses were may be left disappointed. This is despite the number of cargoes W60.3, or $21,809 at the start of the week. that saw falling ship values and lower at $107m, versus $241m for the The August loading programme has available to load out of the Middle East Rates are likely to slip below W50 and time contracting oil and product trades drag corresponding period in 2009. produced a relatively high number of staying level at around 110 crude oil stems charter earnings below operating costs of the division’s 2009 losses to over $255m, In the first six months Maersk Tankers cargoes at around 110. But time charter in both July and August. “The problem is $8,500-$9,000 for the second time in a writes Michelle Weisse Bockmann. also took delivery of a handysize gas charter equivalent earnings in the major newbuildings coming into the market month, some brokers warned. n The world’s largest owner of product carrier, a handysize product tanker and a Middle East to Asia spot market have combined with a lot of ships coming off tankers, and the tanker arm of Danish small product tanker, and also sold a long hovered in the low teens, leaving brokers floating storage,” said the broker. VLCC EQUIV CHARTER EARNINGS shipping giant AP Moller-Maersk, reported range two product tanker, a very large doubting the sectors’ ability to return to Data from another broker, Clarksons, May 2010 - August 2010 a profit of $15m for the first half of 2010. crude carrier and interests in two smaller health in the later months of the year if shows the double-hull VLCC fleet topped a Product tanker rates declined in the product tankers. Sales gains were reported monthly cargo volumes show little growth. record 489 vessels at the start of August, $ per day second quarter following a cold weather at $28m. “We’re seeing heavy cargo months but up from 476 in June and 451 at the start of 80,000 first quarter boost. But crude rates A further two vessels will be delivered not seeing decent rates. I don’t want to the year. “Things do change though and 70,000 continued at “reasonable” levels, in the to Maersk in the second half of 2010, with a paint a depressing picture as these things other than weather-related delays if the oil 60,000 second quarter the company’s said. further 14 newbuildings to follow over the can change very quickly but at the price suddenly falls we could see a lot of 50,000 The gas transportation market also next 18 months. moment we predict the back half of this VLCCs pulled into contango storage like improved. “In the gas carrier market, very The tankers, offshore and other year is bad and I can’t see much hope next we did last year,” the other broker added. 40,000 large gas carrier rates increased shipping activities division, in which year as we’ve got another big newbuilding At the moment, with the August cargo 30,000 considerably throughout the second Maersk Tanker’s figures are incorporated, programme,” said one London broker. loading programme finished and 20,000 quarter of 2010, and for the first time in 18 posted half-year profits of $171m on All owners can hope for is another oil charterers with early September stems 10,000 months Maersk Tankers experienced full revenues of $2.9bn, compared to $178m price contango to emerge, increasing sitting back, the market is quiet. “If the 0 employment in the segment,” the interim and $2.6bn for same period last year. demand for VLCC floating crude storage, cargoes don’t come it could get ugly May Jun Jul Aug results said. Maersk Tankers has a fleet of 272 or another harsh winter creating delays again,” said a Singapore-based broker. 10 10 10 10 “However, as a result of contract tankers under ownership or management, and keeping ships out of the spot market. Reports of two Thailand-destined ■ Middle East to Far East coverage, the rate increases were not fully including 238 product tankers, 10 VLCCs, So far this month on the Baltic cargoes booked onto VLCCs from the passed through to Maersk Tankers in the 11 very large gas carriers, and a 43-ship Exchange’s benchmark TD3 VLCC route, Middle East for around W56 had already second quarter of 2010.” orderbook.

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