Shipping: Half Year Values Round Up
The market trend for Tankers has been positive since the beginning of 2019. The recent purchase of a resale VLCC by SK Shipping for USD 98 mil is a 5 year high price achieved. Older VLCCs has been circulating the market recently and since the beginning of 2019 of the total 19 VLCC deals, with 9 of involving older units above the age of 15 years old. This comes as a result of the increase in rates we saw over the winter months and into the beginning of this year. This earnings environment suggests that the older VLCC tonnage has been sold for further trading to players looking to profit from the short term increase in rates.
The Bulker market saw a 3 year low in rates in April of 2019, which directly corresponds to the low values in the market. This was reflected in a previously unseen occurrence in the S&P Capesize market, where no deals were confirmed for 106 consecutive days. The S&P market began to pick up from the middle of April with 9 sales confirmed YTD which occurred after an increase in charter rates. Out of these 9 deals, 5 of them involves older units above the age of 15 years old. 21 Capesize vessels have been confirmed for demolition since January ’19, mostly with delivery to Bangladesh.
Recent positivity has been caused by recovering Iron ore rates for China and Brazil which cultivates a positive sentiment in the market. Perhaps older ships will become more attractive in this sector as they have done in the Tanker space.
With vessel supply increasing and global economic growth unpredictable, the demand balance remains volatile. However, with rates set to stabilise at higher levels, we are likely to see some further positivity over the next few months.
Values in the Container market have been positive since the beginning of 2019. While the escalating trade war is seen to decrease the demand for container ships in the long run, however in the short run, prices have remained stable. Ship owners are wary in placing new orders, ordering 252k TEU of containers in the first half of 2019 compared to 545k TEU in the first half of 2018, a YoY decrease of 54%. Supply of vessels is also tighter due to ship owners taking over vessels to drydock for scrubber installation in line with IMO 2020. US importers are rushing to load ships before new trade tariffs kick in for the second half of 2019. This activity has driven up earnings and consequently market values too. The earnings for large containers (Harpex 8500 TEU) have surged to a 3 year high of 26,500 (end of June).
The shipping market has always been seen as a volatile marketplace, and there is no exception for the past 6 months. On a positive note, each of the Tanker, Bulker and Container markets seem to be enjoying a recent period of buoyancy. Transactions in this half of the year mostly involved older tonnage. This could indicate that shipping investors are optimistic about the market in the short term and are keen to cash in on the increasing rates. Older tonnage is chosen as aged ships mitigate the downside risk with most approaching residual value.
Uncertainty, however, is to follow during the latter half of 2019 across shipping as the market prepares itself for IMO 2020.