This year would face more newbuilding cancellations than 2011, chinese data show.
In China during January-February period, orders for 22 vessels of a cumulative 1.18m dwt have been cancelled, which accounts for 0.8% of Chinese orderbook as of the end of February and 61.1% of total cancelled newbuildings in the country's shipyards in 2011, according to a recent report from the China Association of National Shipbuilding Industry (CANSI).
Of those cancelled in the first two months this year, bulker takes 72% and tanker 27%.
CANSI said, "An increasing number of shipowners demand modifications to the type of vessel or payment terms and postponement of deliveries."
Statistics reported from CANSI show, during January-February period, 57 numbers of China's shipbuilding and shipbuilding-related companies saw revenue decrease by 7.3% to CNY 33.6bn ($5.32bn) year-on-year, while net profit fell to CNY 1.88bn, down by 26.2%.
CANSI analyzed that slow recovery in global economy and newbuilding price being unlikely to hike caused large-scale structuring of Chinese shipbuilding industry. Despite an estimated 70m-dwt delivery by Chinese yards for 2012, relatively slow ordering activity would keep orderbook falling.
Also, most of newbuildings scheduled for delivery in 2012 have been ordered after global financial crisis at low margin. Therefore, shipbuilding industry would post negative growth in key economic indicators.
A few years back, LPG and LNG shipping were considered - and in large part still are - a niche segment of the market, reserved for specialists. Today, more and more ship owners are looking to get a piece of the action, as these segments offer the best growth opportunities and for the moment they present no issues of oversupply, rather the opposite. As a result, owners stuck with the dry bulk, tanker or container oversupply issues, are looking to expand their business in new and more promising areas of the shipping market. According to the latest weekly report from Clarkson Hellas, "whilst the headline ordering in the gas market over the past twelve months has very much been in the LNG sector, this week we have seen a resurgence of ordering in the LPG sector with the penning of both small fully pressurised and midsize fully refrigerated vessels. Whilst the LNG market and especially the larger sizes filling the Yards big berths, the small to midsize LPG sector is showing some signs of resilience because of attractive pricing from Yards keen to fill early slots combined with relatively stable earnings. Also this week we have seen the number of container ships having been ordered so far this year being trebled to take the firm number of vessels ordered so far this year to the sum total of three Vessels! With the design houses in China spending a considerable amount of time now focusing on improving the smaller to mid-size designs not only in terms of fuel consumption, but also that of homogenous intake to nominal size, it will not be too much longer before we see others ordering in this important sector and allow the operators to enjoy the benefits of lower slot cost per TEU with improved efficiencies" said Clarkson Hellas.
In a separate report, shipbroker Golden Destiny stated that “in the newbuilding market, business remains strong from last week’s high levels with bulk carriers and gas tankers attracting the majority of the business. In the tanker segment, MR product size of 52,000 dwt is still on the centre of investors’ focus on the back of firmer product demand prospects, while in the container market the post panamax newbuilding appetite seems to have disappeared for this year with some fresh activity being reported for an order of two sub-panamax units. Overall, the week closed with 40 fresh orders reported worldwide at a total deadweight of 1,174,000 tons, posting an 8% week-onweek increase. This week’s total newbuilding business is up by 264% from similar week’s closing in 2011, when 11 fresh orders had been reported with only one newbuilding contract in the bulk carrier segment, one in the tanker and four in the container. In terms of invested capital, the total amount of money invested is estimated at region $402,5 mil with 55% of the total number of orders being reported at an undisclosed contract price. Notable ordering business has been in the bulk carrier segment, the construction of ten supramax units of 51,000dwt by an undisclosed Chinese contractor in domestic yard, Taizhou Kouan Shipbuilding” said Golden Destiny.
It went on to mention that “in the bulk carrier segment, the supramax size is on the spotlight on the back of firmer vessel returns amid the distressed capesize freight market status. In the panamax segment, Greek player Diana Shipping announced that it has signed, through separate wholly-owned subsidiaries, two shipbuilding contracts with China Shipbuilding Trading Company, Limited and Jiangnan Shipyard (Group) Co., Ltd, for the construction of two Ice Class Panamax dry bulk carriers of approximately 76,000 dwt each for a contract price of US$29 million per vessel. The Company expects to take delivery of the vessels during the fourth quarter of 2013.
In the tanker segment, Italian player Scorpio Tankers has confirmed an order for one MR 52,000 dwt product tanker with delivery in 2013, increasing the tally of its orderbook to eight product tankers for delivery between July 2012 and May 2013, at a contract price of region US $36 mil.
In the gas tanker segment, Exmar is pleased to announce the order of up to 8 LPG-vessels of 38,000 cum capacity at Hyundai Mipo for delivery from the First Quarter of 2014 onwards. These vessels will be dedicated to strengthen EXMAR’s already substantial commercial portfolio in the mid-size segment and designed to stay ahead of the upcoming amendments in environmental legislation. In addition, Greek player Brave Maritime has placed 4 LPG units in STX Busan of South for delivery 2014-2015 with a capacity of 6,500 cum and 5,000 cu.m. In the LNG segment, executives at Greece’s Tsakos Energy Navigation confirmed that it would order its first diesel electric powered LNG vessel of 162,000 cbm, for delivery in late 2014-2015, with an option for a second. It is understood that it have signed a letter of intent with Hyundai Heavy Industries with expected final confirmation next week.
In the container segment, Long Greek Lomar has signed an order with the Guangzhou Wenchong Shipyard in South China, for two sub-panamax units, 2,190 TEU, with an option for four more, scheduled for delivery starting from early 2014. The vessels have been designed by leading Chinese design institute SDARI (Shanghai Merchant Ship Design and Research Institute) and meet the highest standards for fuel efficiency and environmental compliance. The investment restates Lomar’s dedication to container shipping with renewals and additions to the fleet which benefit from the latest fuel-efficient designs, and follows the company’s order earlier this year for up to six new bulk carriers from China’s COSCO Group. “We are re-investing in our fleet with these new vessels,” said Achim Boehme, CEO of Lomar. “Wenchong has a very strong reputation for delivering excellent quality container vessels and being among the best shipyards in the ‘feeder’ size sector. We look forward to taking delivery of these newbuildings which will enhance our existing portfolio and allow us to stay competitive, continuing to offer a comprehensive service across the whole of Lomar with a modern, fuel-efficient fleet”, concluded Golden Destiny.
One of the key reasons behind many ship owners’ tendency to contract more newbuildings, despite the large supply glut, which in turn has forced freight rates downwards since the end of 2011, is the fact that these days the price one can achieve for a newbuilding is near historic lows. Given the average lifespan of each vessel, which could easily reach of surpass 20 years, it’s more than evident that, low rates or not, the ship owners will be able to reap net profits of it sooner than later. In the past, during the “golden years” of huge rates, ship prices were escalating to incredible highs. But, in turn, owners could cover those costs in a matter of a couple of years. Today, it’s quite the opposite.
In its annual report for 2011, Paris-based shipbroker Barry Rogliano Salles (BRS) said that “construction overcapacity and the scarcity of demand have exacerbated the competition between newbuilding countries and between individual shipbuilders. For the first time in many years, Chinese shipyards are experiencing local competition, in contrast to the boom years when they needed to compete only with South Korean, Japanese or European shipbuilders who were offering newbuilding prices. Less reputable shipyards have not hesitated to undercut the better established shipyards. The strong or state-owned shipyards obtained higher prices than the private or less experienced shipyards, but nevertheless they were also forced to make significant efforts and offer better terms in order to attract clients. By the end of 2011, many shipbuilders reckoned that their sales prices are from now on below their building costs. Many owners asked themselves if the market had reached its lowest point. It is true that often one only realises the lowest point has been reached when prices are once again on the ascent” said BRS.
It went on to take a case-study with a 176,000 dwt Capesize bulk carrier as an example. The price of such a vessel at the end of 2011 was about $48m in China and $52m in South Korea, some 50% below the peak seen in 2008. The lowest price obtained for a bulk carrier of this size was approximately $32m in China in 2002. At the time, China's currency was worth Yuan 8.28 to the dollar, versus Yuan 6.38 at the end of 2011, while steel plates sold for about $300/tonne, against $800/tonne at the end of 2011. “These two parameters alone add an extra $8m and $10m today to the $32m purchase price seen in 2002, leading to an adjusted new theoretical price of $50m. But we must also take into account: the dramatic increase in the amount of steel required to build a hull of this vessel type due to the new regulations (URL, CSR, ...), which overall may represent an additional 2,000-3,000 tonnes of steel, the new regulations which have generated additional arrangements: cofferdams around bunker tanks, bunker tanks to receive different fuel grades, more stringent paint specifications and applications (PSPC), requirements to reduce Nox and SOx, to treat ballast water, to guard against pirates... Also, a significant increase in energy costs (the cost of a barrel of oil averaged $23 in 2002, compared to $106 in 2011), higher wage costs (a Chinese worker earned less than $100 per month 10 years ago, compared to about $800 per month in 2011) and upgraded specifications for onboard equipment” says BRS.
Nevertheless, the report noted that market prices are very likely below costs and we are therefore certainly very close to a new historic low. Much will depend on the yards’ capacity to accept loss-making contracts. It is also very interesting to note that dollar prices for the most representative bulk carrier and tanker types were the same at the end of 2011 as they were in 1993, that is, 18 years ago.
“Shipbuilders continued to be approached during the year with all sorts of requests from customers: cancellations, delivery deferrals, payment deferrals, contract price adjustments, conversion of contracts into other ship types to reflect the new market conditions. Let us not forget that in 2009 and 2010 many owners requested and obtained delivery deferrals for orders placed at high prices before the crisis, in the hopes of an improvement in the freight market conditions - conditions which have not been realised. It seems the situation is even worse now, given the deterioration of the market (freight and asset values) and the new difficulties faced by the banks.
Uncertainty over the exact number of cancellations persists. We estimate cancellations at some 260 vessels in 2011, against approximately 750 in 2010. Most of the 2011 cancellations involved bulk carriers, with nearly 150 units annulled, against some 65 tankers and 13 containerships. They were more numerous in China (127 units) than in South Korea (76) and Japan (20). Since 2008, there has been nearly 120m dwt cancelled: 20m dwt in 2008, 39m dwt in 2009, 42m dwt in 2010 and 21m dwt in 2011.
The situation of many shipbuilders weakened again in 2011 due to cancellations, renegotiations, difficulties in taking new orders and the decline in prices, which have further complicated their relationship with their own financiers who remain essential to new deals. Many shipyards will not be able to execute their contracts and will therefore have to close. Already in China several shipyards have gone bankrupt or simply closed due to a lack of work, often without any publicity” concluded BRS.
As expected, ship owners have kept their stance of refraining from more newbuilding orders, as oversupply issues have plagued the freight markets during these past few months. With things expected to get worse, from the point of view of tonnage supply, it's only natural that owners limit their newbuilding ordering activity, at least until demand picks up in a series of markets. In its latest weekly report, Clarkson Hellas said that "it has been a quiet week in the Newbuilding market with levels of new enquiry remaining relatively subdued. This is not to say however that the market has been devoid of activity and there have been further reports of new business being concluded in both the Dry Bulk sector in China and Gas Carrier sectors.
As has been previously mentioned in regards to the yards in China - due to the rapid expansion of its shipbuilding capacity over the past few years, the various yards are more and more having to come to terms with this market of limited demand. With this in mind, we have continued to see a softening of pricing as the yards try and bring about a new supply/demand equilibrium where owners will again begin ordering. However, with more of the yards beginning to suggest they are now offering berths at direct cost, it remains to be seen whether this pattern continues or whether a new round of consolidation begins amongst the yards, as the on‐going challenges of the current market further takes its toll.
In Korea meanwhile, the major yards have continued to announce new business within the Offshore sectors and look to be making strong progress towards their order targets for the year. With Pacific Drilling for example now exercising its option at Samsung for its seventh ultra‐deepwater drillship, it now means Samsung is close to having achieved 40% of its order target of 2012. With so much of the major yards revenues last year made up of these offshore projects, it continues to look like 2012, as predicted, will follow the same pattern" concluded Clarkson Hellas.
In a separate and rather contradicting report, shipbroker Golden Destiny mentioned that "business picked up again, due to a remarkable rise in the tanker segment and strong LNG and LPG placement of orders. Overall, the week closed with 37 fresh orders reported worldwide at a total deadweight of 1,406,400 tons, posting a 147 % week-on-week increase. This week’s total newbuilding business is up by 208% from similar week’s closing in 2011, when 12 fresh orders had been reported with containers grasping 83% share respectively of the total ordering activity. In terms of invested capital, the total amount of money invested is estimated at region $2,4 billion with 22% of the total number of orders being reported at an undisclosed contract price. Notable ordering business has been in the tanker segment with Brazilian OSX winning contract to build eleven 45,000 dwt product carriers to serve cabotage trade for delivery between 2014 and 2017. Tankers and gas tankers have grasped 54% of the total volume of newbuilding activity and offshore 30%, while in the bulk carrier segment a double kamsaramax order revealed by a Chinese player" said Golden Destiny.
"In the bulk carrier segment, Cara Shipping of China doubled its kamsarmax newbuilding contract at Shanghai Waigaoqiao from two to four units of 82,000dwt for delivery in 2013 at a price region $30,5 mil each. Cara Shipping is linked with China’s Rizhao Steel. In the supramax segment, Taizhou Kouan Shipbuilding of China is said to have won a contract for 10 units with 51,000 dwt by a domestic owner for delivery between June and December next year at an undisclosed contract price. In the handysize segment, Turkish player GSD Marine is said to be in the process for the construction of two units of 37,000 dwt at Hyundai Mipo Dockyard of South Korea. The order is at the letter of intent stage and not further details have been revealed by the owner.
In the tanker segment, European Navigation of Greece (Elka Shipping) exercised an option at STX Shipping for a third suezmax shuttle tanker with delivery in June 2013 at a price region $93 mil. The previous two were contracted in April 2011 at a price of $100 mil each. An option for one more unit is still on hold, while all the three units ordered have a 15year commitment to Petrobras, Brazil. In the MR segment, Petrobras has now awarded Brazilian OSX a contract to build eleven 45,000 dwt product carriers to serve cabotage trade for delivery between 2014 and 2017. The Petrobras contract is valued at $732 mil and vessels will be leased in London based Kingfish Trading with purchase options.
In the gas tanker segment, Russian owner Sovcomflot has placed two 20,600 cu.m LPG units in Hyundai Mipo for delivery in 2013 at an undisclosed contract price. In addition, Dutch owner Anthony Veder is said to have added two more LPG ethylene carriers of 4,500 cbm at Avic Dingheng Shipbuilding of China for delivery in 2014 at a price excess of $20 mil each.
In the LNG segment, Oman Shipping Company announced that it signed an order for a LNG construction at South Korean Shipbuilder, Hyundai Heavy Industries, with a 162,000 cbm for delivery in 2014. The company said that the vessel will feature dual fuel technology. In addition, Maran Gas Maritime, the gas carrier subsidiary of Greek based Angelicoussis Shipping, has exercised its option for the construction of two more LNG units of 159,800 cum, in South Korea’s Daewoo yard with delivery in 2015 at a price about $200mil each. Maran Gas has now seven 159,800 cum LNG units under construction in Daewoo and four 162,000 cu.m units in Hyundai Heavy Industries. Furthermore, partners in Russia’s YMAL LNG project are in discussions for the design of up to 16 vessels of around 177,550 cbm with ice breaking capabilities to work in harsh Arctic conditions" said the Piraeus-based shipbroker.
It went on to mention that "in the multipurpose liner segment, China Navigation Co. has ordered four units, with option for six more, of 39,000dwt in Chengxi Shipyard, China at a price region $23mil each for delivery in 2013-2014. The vessels are eco friendly design and will burn only 18 tonnes per day on a speed of 14 knots.
In the offshore segment, Pacific Drilling of US has confirmed that it has exercised an option for a seventh ultra deepwater drill ship at South Korean Shipbuilder Samsung HI, 60,000 gt vessel for delivery in May 2014 at a total cost, excluding capitalized interest, region of $600 mil. Pacific Drilling CEO Chris Beckett said: “The current strength we see in the market for ultra-deepwater rigs well into 2014 led us to act on this opportunity to order a rig with very favourable delivery timing.” Financing will be provided by a mixture of Pacific Drilling’s recent bond offering, cash flows from ongoing operations and long-term debt. Furthermore, Norwegian offshore specialist STX OSV has won a contract for the construction of one advanced subsea support vessel for Island offshore with delivery in 1q 2014. The contract is worth more than 500M krone ($87M). The vessel will be of Rolls Royce’s UT 737 CD design. It will be 96m long and have a 21m beam and will be equipped with a 125-tonne offshore crane and ROV systems capable of operating at depths of up to 3000m. STX OSV has also secured a contract for one more offshore subsea construction vessel from DOF Subsea of Norway at a price valued 650m kroner ($113,69m)" concluded Golden Destiny.
With global newbuilding market keep declining, the Clarkson newbuilding assessments have also witnessed straight eight month decrease. By the end of February, the index has dropped to 136.3p, even lower than the point in 2009. The assessment saw mild rise in 2010 but then turn to downturn since last year.
Containership newbuilding has given the best expression of the momentum. After last year’s order boom, only one containership was ordered till now. The price of 1,100TEU containerships has declined by 14% to $18.5m, the recorded low since December 2003. However, the newbuilding prices for mega boxships have been relatively stable in the period.
Energy-efficient and eco-friendly bulker and tanker has seen some orders recently with relevant regulations has become more strict. However, it is not enough to turn around the overall declining momentum of bulker and tanker sector. By the end of February, the newbuilding price for 180,000dwt Capsize is about $47.0m, 14.5% down year-on-year. The prices for Panamax and Handysize fell by 17.7% and 13.5% respectively.
In tanker sector, the cost to build a 320,000dwt VLCC has decreased by 5.8% to %97.5m. The newbuilding assessment of Suezmax and Aframax tankers fell to $59.0n (9.2% down) and $51.5m (6.4% down) separately in the period.
The rising LNG market has remained the upturn this year. The price for 160,000CMB LNG carriers has been almost the same level with last year, while the newbuilding cost for 24,000CBM LPG rise by 2.2% to $46.0m.
According to Clarkson, totally 107 vessels of 5.7m dwt tonnage were ordered in the first two months, falling by 5.2%. of the combined contracted value, 3.7m orders are for offshore plants.
Ship owners have concluded one more week of slow newbuilding ordering activity, spooked by the oversupply of vessels, which has plagued freight rates. An additional reason has been the lack of financing, at least for many European-based ship owners, with banks in the region looking to boost their balances and avoid risky sectors. According to the latest report from Clarkson Hellas, "the newbuilding market has been somewhat subdued this week again and a much lower number of contracts being signed than twelve month ago.
The interesting dynamic we are starting to see this year though is that of the Japanese Yards coming more and more to the fore, not only in terms of design, but also now looking much more competitive commercially. No doubt this week’s news of the Yen dropping to its weakest level against the Dollar in more than 11 months, hitting 84.18 Yen to the Dollar in Asian trade yesterday, will no doubt be of some relief in the short term to the beleaguered Japanese Yards, especially those with berths open in the second half on next year! With the Yen spending most of the second half of last year well below the 80 mark and as such the Yards somewhat holding off their commercial marketing as long as they can, they will no doubt be pleased with the Bank of Japan’s monetary policy to tackle deflation to allow them to take less of a loss when accepting USD denominated contracts today.
The Japanese designs seem to be market leading, especially on the dry bulk side of the business and with Yards becoming more and more willing to open up to foreign owners, rather than the previous insular nature of just dealing with their existing customer or domestic owners. We expect in the coming weeks there will remain more and more discussions taking place and no doubt firm business being concluded, especially as some of these new design concepts offer more than a 30% saving on the current vessels on the water. With fuel consumption one of the biggest concerns of the owners and operators going forward, this massively improved efficiency, if on acceptable commercial terms from the yards will certainly be the good for our market going forward" said Clarkson Hellas.
In a separate report, Piraeus-based shipbroker Golden Destiny said that “in the newbuilding market, trends have been turned to previous weekly levels with an average of newbuilding business less than 20 newbuilding contracts. After the strong activity in the bulk carrier segment of last week, offshore support vessels regained their strength monopolizing this week’s business. The offshore market’s newbuilding appetite will persist high with Maersk Drilling planning to double its existing fleet of 16 semi-submersibles and jack up rigs by 2016, since the offshore oil and gas segment is anticipated to remain high on the back of tough crude oil prices and strong demand. Maersk’s Drilling Managing Director, Jan Holm, said that the present global demand for oil is about six to seven times of what Saudi Arabia produce today and over the next 20 years. He added that the era of “easy oil” is gone and there is an increasing need to find oil in harsher environments and deeper waters. The only potential risk is a dip in E&P expenditures by the oil majors if oil prices retreat, but the current fundamentals do not support a downfall” said Golden Destiny.
It carried on by saying that “overall, the week closed with 15 fresh orders reported worldwide at a total deadweight of 49,301 tons, posting a 65 % week-on-week decline. This week’s total newbuilding business is down by 29% from similar week’s closing in 2011, when 21 fresh orders had been reported with bulk carriers and containers grasping 52% share respectively of the total ordering activity. In terms of invested capital, the total amount of money invested is estimated at region $2,05 billion with 73% of the total number of orders being reported at an undisclosed contract price. Notable ordering business has been in the offshore segment for a FPSO construction in South Korean Shipbuilder Daewoo Shipbuilding & Marine Engineering for INPEX Corp of Japan with delivery in the second quarter of 2016 at a price of about $2billion” concluded Golden Destiny.
Meanwhile, in the demolition market “Bangladesh market remains under pressure with disappointing price levels offered, while India still grabs the highest activity at levels around $460/ldt for dry and less than $500/ldt for wet units. In terms of volume of demolition transactions, there has been a rise during the year to date from previous yearly levels with 229 vessels reported to have been headed to the scrap yards before the end of March, up by 52% from a similar period last year. In the bulk carrier segment, around 90 vessels are estimated to have been scrapped compared with 52 last year, and more are expected to come on line for disposal as the BDI still hovers below 1,000 points with capesize and panamax earnings being far bellow from $10,000/day. The week ended with 17 vessels reported to have been headed to the scrap yards of total deadweight 697,988 tons. In terms of the reported number of transactions, the demolition activity is standing at the same levels of previous week, whereas there has seen a 5.6% rise regarding the total deadweight sent for scrap, with a 100% higher scrapping removals in the tanker segment. In terms of scrap price, the highest scrap rate has been achieved this week in the container segment by India for a handy unit of 1,388 TEU
with 6,851 ldt built 1992 at $513/ldt. Bulk carriers and tankers have grasped the lion share of this week’s total demotion activity, 53%, with India winning 9 out of the 17 total demolition transactions. At a similar week in 2011, demolition activity was 12% down, in terms of the reported number of transactions, 15 vessels had been reported for scrap of total deadweight 349,507 tons with bulk carriers grasping 47% of the total number of vessels sent for disposal. Scrap prices were floating at current levels. Bangladesh and India had been offering $470-$490/ldt for dry and $495-$515/ldt for wet cargo” concluded Golden Destiny.
UOB Kay Hian, securities company in Singapore, says executives at China's Yangzijiang Shipbuilding and JES believe newbuilding prices have bottomed out with margins already in the “low single digits” for a new bulk carrier.
Analyst Lawrence Li says JES has stopped bidding for new projects as margins are too low and payment terms are risky.
It also fears filling slots with cheaper vessels will mean missing out on more appealing deals if the market recovers despite a consensus that there will be no sharp pick-up in newbuilding orders before the end of 2013.
It may have been argued over and over that the more newbuilding orders are placed the longer it will take for the shipping markets to recover, but ship owners are still actively pursuing investment opportunities, arising from lower pricing. In its latest weekly report, Clarkson Hellas said that “with further Holidays in the Far East this week – the market has been a little more subdued this week – however with continuing reports of new business being concluded there is arguably enough opportunity present to keep things interesting. The burning issue in the market continues to centre around efficiency – and with shipyards and owners continually placing an increased emphasis on improvements in efficiency of ship design, against the backdrop of a bullish outlook for Bunker pricing, there is no doubt that this will continue to be a key factor taken into consideration for those contemplating newbuilding” said the report.
Clarkson Hellas went on to mention that “with substantial efficiency improvements now being offered across the entire spectrum of asset classes – facilitate by improvements in engine designs, energy saving devices and optimised hull forms, there is certainly an argument for buyers to take advantage of new technology and competitive pricing. This has arguably triggered some activity for both the Dry and Wet sectors so far this year – however - despite improved designs also being offered in the container sector, we have only seen one
newbuilding deal concluded so far this year in this sector! This was for a sole 4,800 TEU container vessel at CSC’s Jinling Shipyard and saw a some ten per cent drop in pricing from when the last vessels were contracted of this size in China in June last year. The small to mid container sector of say 2-5,000 TEU enjoys a very sparse orderbook, especially in terms of a percentage against the Vessels already in the fleet and so with the greater efficiencies these various new designs offer, we do not believe it will be long before we start seeing some more contracts being inked. The interesting thing will be seeing if the Operators will be ordering for their own account, or if it will be Beneficial Owners ordering either on speculation or against long term charter contracts. The even more interesting point for consideration in the current challenging debt climate and typically inability today of the KG’s to support is demand for what was once their bread and butter tonnage, is that will we see a greater number of non-German buyers taking advantage and ordering. In the end, it remains to be seen where the pricing will go today for these container designs, with the Yards, especially in China so very keen for orders of this size at the moment and certainly a story to follow over the upcoming months” concluded Clarkson Hellas.
In a separate report, Piraeus-based shipbroker Golden Destiny, mentioned that “the downward activity of newbuilding continues with dry bulk and tanker segments experiencing a dearth of business bringing memories of the year 2009, when shipping players had showed a strong conservativeness amid economic turmoil and lower newbuilding prices had emerged. At a similar week in 2009, only three new building contracts had been reported, one in the bulk carrier and two in the tanker segment. Cosco Corperation of Singapore is expecting the plunge of newbuilding business to persist with a new direction in newbuilding prices as players are unwilling to pen new orders under the current freight and economic market uncertainty. Wu Zi Heng, vice chairman and president of Cosco, said that there may be a greater pressure on the prices of new vessels as their customers may be reluctant to commit to new orders for vessels in the short terms. The gloomy business outlook has hit Singapore listed Cosco Corp, which reported a 44% plunge in net profit for its financial year 2011” said Golden Destiny.
It carried on by stating that “overall, the week closed 16 fresh orders reported worldwide at a total deadweight of 560,600 tons, posting a 69 % week-on-week decline from last week’s record business of 52 new orders. This week’s total newbuilding business is down by 36% from similar week’s closing in 2011, when 25 fresh orders had been reported with bulk carriers and containers grasping 28% and 48% share respectively of the total ordering activity, whereas now bulk carriers are now holding only 12.5% of the newbuilding business with offshore units grasping the lion share, 44% share of the total newbuilding transactions. In terms of invested capital, the total amount of money invested is estimated at region $400 mil with 88% of the total number of orders being reported at an undisclosed contract price. In terms of invested capital, the most overweight segment appears to be the offshore and LNG segment with hefty investments for two drilling rigs in Samsung of Korea at about $600 mil each and two LNG units at a total cost of $400 mil.
In the bulk carrier segment, notable order is being reported for two post panamax units of 95,000dwt by Chinese player, Fujian Shipping for construction at Fujian Provincial Communication Transportation group at an undisclosed contract price with delivery in 2014, which are considered to be the largest vessels built by this owner.
In the tanker segment, MR units continue to be more popular newbuilding candidates than crude carrier vessel types with the Kuwait Oil Tanker placing four 46,400dwt units at Hyundai Mipo of South Korea for delivery in August of 2014” concluded Golden Destiny.
Scrapping of older vessels is still ranging at high levels, as more and more owners have realized that demolition activity is one of the most crucial elements in helping the freight market rebound, i.e. via removing older tonnage to make room for newer. In its latest report, Clarkson Hellas said on the demolition activity that "a stable market is the best way to describe the current situation. It is evident that Buyers remain interested to acquire units, however, we have turned the tide and they are no longer willing to accept owners demands. With the continuing supply still exceeding actual demand, Buyers are now able to ‘pick and choose’ their preferred candidates. We see evidence of this changed attitude in the reported sales this week. Several units that have been sold this week have been circulating for quite some time. Owners had been pushing to achieve the high numbers seen in previous months, but were forced to come to the realization that the market was not there to support such prices. The market has not bounced back to the previous highs and subsequently Owners have had to sell their units at the new, reduced rates. Chinese rates have been stuttering along this week as the domestic market saw steel prices falling daily. As a result it has proved difficult to achieve positive offers. This is further affected by local owners’ tonnage being paraded into the local market. Elsewhere, Indian breakers continue to show their eagerness to acquire new tonnage, although it is worth highlighting that most breakers are not offering at particularly aggressive rates" said Clarkson Hellas.
In a separate report, shipbroker Golden Destiny mentioned that “scrap price levels continue to be soft as supply of tonnage for disposal is surpassing demand under the current sluggish freight market with owners be more than willing to remove their vintage capacity from their fleet. Scrap prices in the Indian subcontinent region for dry units are in the mid / high $400/ldt and excess $500/ldt for wet units, while levels in China are still below $450/ldt. Few deals are reported in the Bangladesh with India still leading the game. Even Bangladesh has opened the market is still very delicate from prompt and timely deliveries as new regulations and paperwork put obstacles in the strength of the major shiprecycling industry.
The week ended with 11 vessels reported to have been headed to the scrap yards of total deadweight 665,973 tons. In terms of the reported number of transactions, the demolition activity has been marked with a 35% week-on-decline due to 50% lower scrapping removals for bulk carriers, tankers and liners, whereas there has been a 47% fall regarding the total deadweight sent for scrap. In terms of scrap rates, the highest scrap rate has been achieved this week in the container segment by India for a 12,861 ldt unit built 1983 at $502/ldt with sufficient fuel for voyage. Bulk carriers have grasped the lion share of this week’s total demotion activity, 55%, with India winning 54% and Bangladesh 18% of the activity. At a similar week in 2011, demolition activity was down by 36% from the current levels, in terms of the reported number of transactions, 7 vessels had been reported for scrap of total deadweight 562,242 tons with bulk carriers grasping 72% of the total number of vessels sent for disposal. India and Pakistan had been offering $455-$465/ldt for dry and $485-$495/ldt for wet cargo, while Bangladesh market had been inactive from the demolition scene” concluded the Piraeus-based shipbroker.
Meanwhile, attempting to justify why ship owners are still that much active in the newbuilding market, Intermodal’s Panos Tsilingiris said that “, the price of a newbuilding could be considered "cheap" not only if it is historically inexpensive, but also if its price is below or close to its cost. Looking back the 20-year history of Panamax newbuildings, three local lows stand out: (a) in 1999q1 in the very high teens; (b) during 2002 with prices stagnating in the low 20s; and (c) today with prices being rgn 28million USD. In fact, current inflation adjusted prices indicate that today we may be close to the lowest price levels of the 20-year history” said Tsilingiris.
He went on to state that “the cost criterion is more difficult to be applied since manufacturing cost is not publicly available information due to competitive considerations. Still, we have positive hints that today newbuilding prices are much closer to the cost of building a vessel, which can principally be broken down into steel, machinery and labor costs (we do not consider here overhead, class, etc costs and productivity considerations). Suggestively, hot-rolled steel prices are today rgn 800usd/ton compared with mid-high 200s USD/ton in 2002h2 and low 200s USD/ton in 1999q1, when the other two lows occurred. Needless to say, since then both machinery and, especially, labor costs have soared.
To recap, according to both our criteria Panamax newbuilding prices, appear "cheap" or "low". In the very next quarters, two facts will possibly concur: (a) newbuilding prices will reach a new local minimum; and (b) more future-oriented vessel designs (focusing on energy-efficiency, not deadweight maximization) will emerge due to the new market drivers. A savvy shipping investor cannot afford to miss this opportunity” concluded Mr. Tsilingiris.
Lower pricing and growth strategies are still mobilizing the newbuilding business with owners showing a tendency towards niche segments of the shipping market, which appear to be less over-weighted and show greater growth potential. In its latest weekly report, Clarkson Hellas mentioned that "the newbuilding market continues to maintain a relatively healthy level of activity, with further reports of new business being concluded across Dry, Tanker and Gas segments of the market. In Korea – they Big 3 continue to place an emphasis on Offshore and LNG, veering away from a focus on conventional tonnage and leaving this segment of the market open to the Mid-Sized yards, who are now competing hard for the remaining pockets of enquiry that exist. Such requirements continue to be design led and efficiency remains a critical consideration for buyers in what is remains, in broad terms, a tight trading environment.
"In China, appetite for new business from the State and Private sectors shows no sign of relenting – and pressure continues to mount against what is becoming an ever more imminent exposure, in terms of vacant 2H 2013 capacity. There are moves to increase the diversification of existing product mixes and step away from a pure dependence on Dry – however – it remains clear that China remains most competitive on the sector on which it has built its market position – and with time and money invested into the advancement of the full spectrum of Dry designs they remain by far the most compelling commercial avenue in the market. Japan also continues to warm up and with further reports of business being concluded – we may well see the Japanese push a little harder on Dry as the year evolves" concluded Clarkson Hellas.
Meanwhile, in terms of business activity concluded, shipbroker Golden Destiny mentioned, in a separate report that, "fresh offshore contracting activity again monopolized newbuilding business with some worries that the surge in orders will harm the supply-demand balance, but the key driver for a strong offshore support vessel market is the sustained E&P spending by the refineries. According to STX OSV chief Roy Reite with oil trading at above $100 per barrel the cost of crude oil production is adequately covered, spurring oil explorers to venture to deep waters and harsher environments. A greater number of offshore support vessels will be required to support oil rigs out at sea, resulting in long term fixtures for platform supply vessels and anchor handling tug supply vessels in the active North Sea market. At the current slump of freight market along with the glut of new ships, the volume of newbuilding contracts remains subdued in the dry bulk carrier and tanker segments with LNG carriers being the second preferable choice, after offshore support vessels, for newbuilding investors" said Golden Destiny.
It went on to mention that "overall, the week closed with a record high of 52 fresh orders reported worldwide at a total deadweight of 1,032,640 tons, posting a 189 % week-on-week increase from a 700% boost in the offshore contracting activity. This week’s total newbuilding business is in close parity with similar week’s closing in 2011, when 58 fresh orders had been reported with bulk carriers and containers grasping 43% and 24% share respectively of the total ordering activity, whereas now bulk carriers are holding only 15% of the newbuilding business with offshore units being in the frontline with a 46% share. In terms of invested capital, the total amount of money invested is estimated at region $1,55 billion with 75% of the total number of orders being reported at an undisclosed contract price. In terms of invested capital, the most overweight segment appears to be the offshore by holding 53% share of the total amount invested for newbuilding units" stated the Piraeus-based shipbroker.
It went on to report that "in the bulk carrier segment, Yangzijiang Shipbuilding has secured shipbuilding contracts for seven units at an aggregate contract value of $206,2 million since January 2012. Ren Yuanlin, executive chairman of the Singapore listed yard, said that the new contracts secured comprise of 4 units of 82,000 dwt bulk carriers, 2 units of 95,000 dwt and 1 unit of 47,500 dwt without revealing the name of contractors for delivery 2013-2015. Furthermore, the Hong based owned company Crown Ship, established by China’s Sinopacific Shipbuilding to control ships for its own account to bid the dearth of newbuilding business, has placed 6 units of 63,500 dwt with delivery 2013-2014. Sinopacific builder hopes to resell the units to other owner.
In the tanker segment, China Merchants Energy Shipping is planning to expand its fleet by order 10 VLCC units despite the sluggish freight market status. Li Jian Hong, chairman of China Merchants, believes that the time is right to raise their competitiveness through fleet expansion by taking advantage the lower newbuilding prices. China Merchants is working to raise RMB5,56bn ($882,5mil) to purchase the 10 VLCC newbuildings. In the MR product segment, US based ship-owner has booked two 52,000dwt units in South Korea’s SPP Shipbuilding with delivery in the first half of 2014 at a total value of $73 mil. The contracted MR tanker units can ship 2,000 ton more than existing 50,000 dwt tankers, while they are designed eco friendly with fuel consumption being reduced by about 20%. The order follows a confirmed announced deal from the Greek player Navios Acquisition for the placement of three MR product tankers at an undisclosed Korean yard for a total price of $106,5mil for delivery in the second, third and fourth quarter of 2014. Furthermore, Scorpio Tankers has exercised its option for a 52,000 dwt unit in Hyundai Mipo for $37,4mil with delivery August 2013. In the gas tanker segment, Stena Bulk of Sweden is planning to expand its LNG fleet from an existing three by planning an order of four more LNG carrier newbuildings at a value of $200 mil each with South Korean shipbuilders, Daewoo Shipbuilding and Marine Engineering and Samsung Heavy Industries based on the positive LNG prospects. The units’ size will range between 160,000-174,000 cu.m for delivery in 2014-2015" concluded Golden Destiny.