Newbuild dry bulk orders up as shipowners sense storm abating

Shipowners are become more optimistic that the freight market is poised to recover as they order new dry bulk vessels despite the prolonged crash in charter rates, shipping sources said Tuesday.
A shipping agent said the price of a new Capesize vessel had declined continuously over the last 33 months.
"Shipping companies in general are looking at newbuilding costs and are currently considering that such costs are the lowest that they are likely to see in the market," a Singapore-based shipping source said.
At a coal conference in Bali, Indonesia, earlier this month Frederic Fontarosa, a director at Wilhelmsen Ships Service, said in a presentation that Greek shipping companies are ordering the most new iron ore carriers since 2008.
"When in Rome, do like the Romans. When in shipping, observe the Greeks," Fontarosa said.
The Singapore-based source said the Greeks are not alone in ordering newbuilds, adding: "Shipowners are going out and are more confident about having newbuilds done. Now is the right time to do it."
Erik Nikolai Stavseth, an analyst with Oslo-based Arctic Securities, said there were two main reasons for the rise in orders for new dry bulk vessels.
He told Platts that shipyard operators, eager for business after a significant decline in orders, are approaching shipowners to order new ships to be built cheaply. Added to that, new ship designs were offering fuel cost savings of 10-25%.
He said a new Capesize -- which takes about three years to build -- costs about $48 million, down from $97 million in 2008, while a five-year old Capesize vessel which was selling for $160 million in 2008 when the freight market was at its peak, can now be bought at $33-34 million nowadays.
Stavseth said shipowners are being told that at current newbuild vessel costs, they will only need one good year in five to 10 years to recover their investment.
On the dry bulk situation, analyst Frode Morkedol of RS Platou Markets said in a June quarterly shipping report: "The turning point is approaching but still some way to go. Fleet utilization is likely to remain more or less unchanged in 2013, on average, as tonnage demand grows with the same pace as the fleet."
The anecdotal increase in newbuild orders is happening despite the continuing slump in dry bulk charter freight rates.
In 2012, the Baltic Exchange Dry Index (BDI) averaged less than 1,000 points for only the second time since the 1980s, shipping source said.
It plunged to its lowest in December 2008 at below 700. On June 17, the BDI stood at 925.
The average Capesize daily time charter rate was slightly below $5,000 in May, a far cry from the 2008 peak of $229,000. On June 17, the average daily Capesize charter rate was $8,276.
Fontarosa said in his Bali presentation that several factors are contributing to the current optimism of shipowners who have decided or are deciding to order new dry bulk carriers: an increase in new steel capacity as well as higher iron ore production costs in China that encourages imports.
He also cited factors such as rising coal demand in China and India, a slower rate of increase in dry bulk ships' supply and a slight increase in scrapping of old ships.
The Singapore-based source said another factor prodding newbuild orders was the push towards the use of 'eco-friendly' vessels that are fuel efficient.
Fontarosa said an analyst at Galbraith Ltd. has said: "The fact we are seeing more buying is certainly a sign that sentiment is turning, and that shipowners are sensing an opportunity."
Morkedol said the factors that bode well for improving dry bulk freight fundamentals include the "slowing trend in fleet growth during the course of the year and a possible need for China to replenish iron ore inventories" which should create potential for higher earnings for Capesize shipowners.
He also said a slowdown in ship deliveries combined with a gradual recovery in the world economy would account for improving fundamentals in 2014 and 2015.
"The latest world economy forecasts for 2013 suggest global GDP to increase at approximately the same rate as last year, followed by somewhat higher growth in 2014 and 2015. In line with this, it is expected that dry bulk trade this year will grow more or less as the same rate as in 2012 and at a higher rate in the following years," he added.
The Singapore-based source said there was optimism that freight levels would rise. "The longer that you go into a bad market, the closer you get to an improvement," he said.
But he warned: "Exactly when that improvement will happen and how better freight rates are going to be is open to speculation."
Stavseth said he did expect freight rates to boom in the next two years and that a recovery in the market will be "slow, gradual and painful" although he expected 2014 and 2015 would be better than this year.
Source: Platts