Newbuilding activity still activity, but below 2010 levels

The latest reports from shipbrokers and analysts suggest that ship owners have started to moderate their pace of newbuilding ordering, as a result of a hefty orderbook for most ship types, combined with the uncertain state of most freight markets.

According to the latest weekly report from Clarksons, “as we move into into the second quarter of the year the newbuilding market continues to remain active with further reports of new business being concluded. As has been the pattern of late, it is the container sector that continues to generate the majority of this activity with the tanker and dry bulk markets continuing to remain relatively quiet.
The price of steel plating and its effect on the newbuilding market has been a hot topic of conversation of late, with price increases being announced by the major steel mills. Korea’s largest Steel producer POSCO is said to be increasing its pricing of steel plates by approximately US$120 per tonne and rumours emanating from Japan suggest we will see price increases of perhaps as much as US$300 per tonne. In Japan in particular there is much talk of the expected additional steel demand to be placed on the mills with the rebuilding efforts due to start following the earthquake last month and this too is expected to further increases pressures on supply and generate further cost increases.
These factors along with the continuing currency appreciation in the Far East will again highlight the challenges being faced by the yards today to remain competitive on pricing.
In terms of reported business; In Dry, Zhejiang Wugang Shipping have ordered a pair of 47,500dwt Bulk carriers for delivery in 2013 at Zhejiang Tai Tong Shipyard. Wenzhou Shipping have ordered a similar pair of 47,500dwt Bulk carriers at CSC Jinling with deliveries scheduled for 2H 2012 though we understand this was signed earlier this year” said Clarksons.
In an earlier report, London-based Gibson had argued that tanker owners have effectively abandoned the newbuilding market. “Months of low earnings coupled with a bearish sentiment in the tanker spot market has finally slowed down the shopping spree for tanker newbuildings” said the latest weekly report from the London-based firm.
“Things do change. The first three months of 2011 have seen no new VLCC orders, which has not happened in any quarter during the past five years. Even in the first two quarters of 2009, which followed the free fall of the world economy, owners still managed four VLCC newbuildings.
Now owners have had a sudden change of heart. Albeit the price of new VLCCs remains low, there are a number of unpleasant facts that make further fleet expansion seem like a bad idea. The pickings for owners are slim, even though there has been a moderate rise in earnings to an average of $24,000/day in the first quarter of 2011. Considering that total running costs of a VLCC (including fixed operating costs and capital expenses), bought for a current price of $103 million are about $39,000/day, the newly delivered vessels would not be economically viable in today’s market. The heavy ordering in the “good years” is continually making the situation look worse. There are currently 173 VLCCs on the orderbook and 69 of those are scheduled to hit the water in 2011. This would expand the existing fleet by further 12%, putting more downward pressure on rates. High bunker prices and less availability of bank finance all stand in the list of risks for tanker investment. The story is almost the same for all tanker size groups. There have been only seven tanker orders so far in 2011, which compares with an average of 55 per quarter in 2010. However, it is not all that shabby. The expected rise in OPEC production, unrest in the Middle East/North Africa and the growth of optimism in the world economy will prove to be strong supporting factors for a new ordering renaissance. Timing is still the critical element in this game and at the moment biding time seems like the best investment strategy” concluded Gibson.
Meanwhile, during the previous week, Tsakos Energy Navigation was reported to have have signed a pair of 157,000dwt Shuttle tankers at Sungdong with delivery of the vessels scheduled for 2013. In containers meanwhile, Evalend Shipping are reported to have ordered 2 + 2 x 4,800TEU container carriers at Zhejiang Ouhua with initial deliveries scheduled from 1Q 2014 onwards and at a reported price of circa USD 58 Mill per vessel. Finally, Sungdong are reported to have contracted a pair of 3,600TEU vessels with owners NSC Schiffahrt with these vessels set to deliver in 2013.