As the end of the year coming, market players are getting interested in shipyards gaining new orders.
Besides major Korean shipbuilders, such as Samsung Heavy Industries, Hyundai Heavy Industries, STX Offshore & Shipbuilding, etc., Hyundai Mipo Dockyard, SPP Shipbuilding, etc., have inked orders for LNG carrier, dive support vessel, PCTC, Con-Ro, product carrier, etc., successively and they are under newbuilding negotiations as well.
Orders swarm in December as final contract process begins and some say cash-short shipbuilders rush into sealing the deal in order to find cash by the end of a year.
One market export said newbuilding prices from orders contracted in the end of the year and the amount of newbuilding investment could affect newbuilding market of the following year and therefore, market players are observing the market closely.
Ship owners are active once again in the newbuilding ordering market, as they look to clinch deals ahead of the end of the year. Once again their focus has been on niche segments of the market, which are less overcrowded than more traditional parts of the market, like tankers and dry bulk carriers. According to the latest weekly report from Clarkson Hellas, during the course of the past week, there has been further ordering of course on the various conventional asset classes, but the PCTC (Pure Car and Truck Carrier) sector has again won further orders.
According to the report, "we have already seen 25 firm Vessels contracted this year in the 3,500-7,300 CEU sector and with further options due to be declared within the end of this calendar year, we might see this number creep into the 30’s. This will be the most significant ordering in this sector in recent years, with only four firm vessels ordered last year, 21 in 2010 and 12 in 2009. As we have seen in the other conventional sectors, the ship designers have been working hard and have made significant reductions in the fuel oil consumptions of these new orders compared to the Vessels already on the water. The main debate amongst the owners and operators has been over choosing a panamax (sub 7,000 CEU) or a post-panamax beam design and to this date, the more traditional panamax beam design parameter has been the one to attract the most orders" Clarkson Hellas said.
PCTCs require specialized construction. For example, the internal decks are made from thinner steel plates that require skilled welding techniques and the design of these areas must ensure maximum cargo space, flexibility and efficiency. Only a limited number of shipyards and shipping companies worldwide are equipped to build this tonnage. Technical management is also specialized. Crews must be proficient in the additional systems on board a car carrier (ramp operation, deck lifters and ventilation) and competent in handling vehicle cargoes. Seaborne vehicle trades are worldwide and evolving as they track the globalization of the vehicle market. This is positive for the PCTC market, boosting ton-mile demand while providing more resilience to car makers and more choice for consumers. In addition to passenger vehicles, PCTCs also carry ‘high and heavy’ cargoes such as construction and agricultural equipment, trucks and machinery which have their own unique trading patterns
Clarkson Hellas said that in terms of reported business, "in the aforementioned car carrier market, STX are reported to have won an order for two option two x 6,500 CEU PCTCs. These have been ordered by clients of Zenith Partners Korea Co. and will be built at STXs main facility in Jinhae, Korea. The two firm units are scheduled to deliver in 2015 and pricing is understood to stand in the region of USD 65 Mill per vessel. Hyundai Mipo meanwhile are understood to have won a further order from the Grimaldi Group for a further pair of 28,600dwt Con-Ros. These are understood to be the declared options from their original deal for 3 units signed in September, bringing the number of vessels ordered in the series to five in total. The latest pair are also expected to deliver in 2015 and pricing understood to stand at circa USD 70 Mill per vessel.
In containers, Hanjin are reported to have won an order from clients of NSC Holding GmbH for a pair of 9,000 TEU container carriers. The deal is understood to hold options for up to as many as four additional vessels and pricing has been reported at USD 81.65 Mill per vessel. The two firm units are provisionally to be scheduled to deliver in Jul & Sep 2014. Part of the funds for this order will have come from the money Clients of NSC left behind from their cancelled order for four 13,000 TEU Vessels back in the peak of the market in summer 2007.
Finally in Dry, it was reported that U-Ming had ordered a pair of wide beamed 84K Bulk carriers at Oshima Shipbuilding for delivery in 2H 2014. The vessels were reportedly contracted at a price of circa USD 33.5 Mill which whilst seems somewhat rich, we understand this deal was concluded earlier this year, hence not only the price but the relatively early deliveries" the shipbroker concluded.
Shipping is all about timing, a process often rising to the height of artform, as ship owners are having to pick the exact moment of selling most of their fleet and investing a new one, i.e. selling high and buying low. As the current market conditions favor the buying part of the market, with asset values on a downward path during the past few years, it's not easy to pick the right time, since next week a vessel with similar specifications to the one purchased, may have lost an additonal few thousand dollars off its value and in shipping even those matter.
As a result, it is very difficult to predict with full accuracy the proper timing, not to mention estimate where vessel values will have moved during the next couple of months. According to the latest weekly report from Piraeus-based Intermodal, despite the fact that most market pundits continually voice that second-hand and newbuilding prices have the potential to fall by as much as 20-30% in the next few months, there are always "Black Swan" events which catch everyone by surprise.
In his analysis, Intermodal's Panos Makrinos notes that "taking the case however that asset prices may drop further, it makes fair reason for any prospective buyer who currently has serious interest in buying new vessels, to wait for some time before taking any decisive action. All that being said, such a decision may well be within minimal risk of an upward swing in asset prices but always entailing some".
He added that "according to current market anticipation, the right time to buy a second-hand vessel or a newbuilding will be some point in the first half of 2013. The expectation is that prices will more accurately reflect the current low freight levels experienced as well as the lack of serious buying interest. The question that arises here is whether this common thinking is indeed reasonable and able in itself to persuade all these prospective Buyers to wait despite the discounted prices offered. In essence, their choice to wait means that they would forgo any potential gains that could be succeeded from acquiring modern second hand or newbuilding vessels at current levels. The question is to what extent should owners be chasing the market bottom, especially in the case were they are planning to make more than one vessel acquisition" he noted.
Makrinos also mentions that "in the case of new orders we can see a further case for owners to take on this decisive action, since we all appreciate that what both the dry and wet sectors need right now is ever stronger demolition activity in order to counterbalance all the new deliveries that we have seen in 2012 so far. As mentioned in our weekly report at the end of last month, in the dry sector alone we have seen more than 1,000 dry bulk carriers delivered since the start of the year with over 85 million tons of deadweight capacity and there is still time to go before the end of the year. This may well have been offset by the record number of demolitions seen, however we it has not been all smooth sailing in the scrap market. Demo prices have recently been under pressure and with a lack of clear market direction it looks as though they could possible soften further by the end of the year if we continue to see the current strong supply of demo tonnage in combination with weak steel demand.
What one might voice, is whether all this should truly influence one’s decision for further ordering. A new vessel is always treated better amongst charterers than an old one, while at the same time you would not expect to miss out on any “Party” while waiting for delivery. The argument as to whether one should order a new building or buy a secondhand unit will continue on for some time, however what is imperative and would be seen as an encouraging sign, is a more active stance towards demolition, especially while the current scrap steel prices still hold their ground. After all no-one knows what the New Year may have in stall for the shipping industry and it may well be better to be with cash at hand" the analyst concluded.
Ship owners have kept up a healthy level of enquiring for newbuilding contracts, but with the exception of a few container ship orders, for the most part they have refrained from placing more orders. Clarkson Hellas siad in its latest weekly report that "we continue to see general enquiry across the market, with the focus still on fuel efficient tonnage regardless of the sector in question". The shipbroker continued its analysis by noting that "the challenges being faced by the shipyards this year are well known and as reported last week the overcapacity of supply from the yards has certainly contributed to the softening of pricing witnessed throughout the year. In an effort to counter this we continue to see a shift in the strategies of the yards. Many having increasingly looked to limit or slow down their production processes to help alleviate this supply driven pricing pressure and across the regions, including within China, we have seen an increasing drive to broaden product ranges to help alleviate any single sector reliance. It will be interesting to see within the remainder of the year, whether these strategies reap dividends and pricing holds at a more steady level through till year end" said Clarksons.
In terms of ordering; In Dry, Norden announced that they had recently placed an order for an ice classed Panamax Bulker within Japan. No other details have yet been released and they have declined to name the yard in question. As has been the case in recent years, the Dry bulk market has remained a key focus for Japan and this year has now seen over 60% of their 2012 orderbook being placed within this sector. The Japanese yards continue to remain at the forefront of efficient design development and this will continue to be a key factor for them as they work to overcome not only the existing challenges of the global market but the additional challenge of the continuing strength of the Yen.
As mentioned however, the bulk of the reported business this week has been within the Container sector; Clients of Aeolas Management are understood to have placed an order at Hanjin Subic, in the Philippines, for 2 x 6,800 TEU container carriers with delivery of both vessels scheduled within 2014.
Pricing of these two vessels is understood to stand at circa USD 57 Mill per vessel. STX Shipbuilding meanwhile are understood to have won a new order from Korea Marine Transport Co. (KMTC) for 1+1+1+1 x 5,000 TEU containerships. The firm vessel is provisionally scheduled to deliver within 1H 2014 and pricing is understood to stand at USD 44.5 Mill per vessel. In addition to this STX have also announced they have agreed to switch an existing order for an existing client of theirs (understood to be Fratelli D’Amato) from 1 VLCC to 2 x 9,200 TEU Container ships at STX Jinhae. A new contract price of USD 176.3 Mill for the pair has been announced, although the new delivery position has not been set.
Meanwhile, in terms of the sale & purchasing activity in the second hand market, Clarkson Hellas noted that it has been a busy week in the drycargo market. "In the Capesize sector, it is being reported that clients of Berge Bulk have acquired the M/V CAPE CAMELLIA (172,502 dwt 2000 blt NKK) in a direct deal from K-Line for a price of US$ 17.5m. This is in fact an older deal, however the price is still in line with the recent sale of the “GREAT PHEASANT” which was committed last week for the same levels. An older capesize, the M/V CAPE AUSTRALIA (149,512 dwt 1990 blt CSBC) has been sold in a trading deal for US$ 7m to clients of Winning Shipping. Trade & Transport are reported to have purchased the Kamsarmax sister vessels M/V NORD AQUARIUS (81,800 dwt 2011 blt Guangzhou Longxue) and M/V NORD AQUILA (2012 blt) for US$ 43m en bloc.
The M/V NORD MERCURY (77,171 dwt 2008 blt 2008 Oshima) was sold in a quick, offmarket deal to client of Oldendorff Carriers for a reported price of US$ 18.4m. It is understood that the Buyers waived inspection of the ship.
Elsewhere in the panamax sector, the M/V HALO CYGNUS (73,937 dwt 1998 blt Tsuneishi) is understood to have been sold by Mitsui O.S.K. to Greek buyers for US$ 8.7m while the M/V MARINA WAVE (69,451 dwt 1992 blt Hashihama Zosen), has been sold for US$ 5.1m to undisclosed interests.
In the handymax sector the M/V IZOLA (45,916 dwt 1997 blt Halla) has been committed by clients of Splosna Plovba to Greek buyers for a price of US$ 9.5m.
There is very little in terms of sales activity to report this week in the Tanker S&P market.
The M/T SAFFRON I (32,040 dwt 1999 blt Daewoo) has been sold to traders specialising in West African business at US$ 8.2m basis a prompt charter free delivery. The ship was particularly shallow drafted with decent cubics which make her suitable for trade in the Nigerian region. The IMO II/III sister vessels M/T DIPLOMAT and M/T NEGOTIATIOR (13,000 dwt 2007 blt Sekwang) reported sold to buyers in Turkey for US$ 12m each" the report concluded.
A total of 1,390 vessels of a combined 19.27m gt have been contracted during the first nine months of this year, declined by 32% year-on-year in gt terms.
Chinese shipyards accounted for 38% of share with 428 vessels of a cumulative 11.06m gt. Korean and Japanese shipbuilders contracted 159 vessels of a combined 8.41m gt and 296 vessels of a cumulative 7.05m gt, taking 29% and 24% each.
During the same period, overall 2,755 vessels of a combined 79.62m gt have hit the water, as similar as last year. Chinese, Korean and Japanese shipyards delivered 1,133 vessels of cumulative 31.62m gt, 407 vessels of a combined 27.54m gt and 471 vessels of a cumulative 14.61m gt, respectively.
Global newbuilding orderbook, as of the end of September, stood at 6,050 vessels of a combined 178.82m gt, decreased by a quarter against a year earlier. Chinese shipyards secured 2,118 vessels of a cumulative 71.38m gt, down by 22%. Korean and Japanese shipbuilders' backlog dropped by 32% and 23% to 840 vessels of a combined 57.9m gt and 823 vessels of a cumulative 28.91m gt each.
October saw global new orders increased by 30 vessels against previous month to 135 vessels, according to China's Glinfo.com.
Chinese shipbuilders contracted overall 59 newbuildings during the same month, comparing with 40 vessels contracted in September. Most of orders turn out to have placed from European owners.
Of them, bulkers saw 15 orders, up by seven vessels on the previous month, and eight product carriers and nine offshore drilling platforms were contracted.
During the same month, the rest of shipbuilders, excluding Chinese, penned a total of 76 newbuildings, up by 11 vessels month-on-month.
In October, Korean shipyards contracted overall 34 new orders, while shipbuilding industries in the Netherlands and Japan booked 16 and seven newbuildings, respectively.
Although there are several positive indicators for shipbuilding market recovery, such as slowly increasing new orders, improving China's macro economy, etc., global economy is still depressed by and large and shipping market seems not likely to make a significant uptick.
Therefore, global shipbuilding market seems to be still distant from recovery.
According to USBS, global order catalog is expected to continue current declining momentum, which is likely to intensify the competition between shipbuilders and further drive newbuilding price down. Newbuilding output is to slow down and global economy is likely to bottom out in 2013, however, ordering activities are difficult to recover due to the capacity oversupply. The new order volume of the first nine month in 2012 has fallen by 44% with economic conditions and financial support getting worse.
UBS estimates that more small and medium shipyards are to be eliminated in the future. At present, more and more shipyards are facing grim conditions with new order shrinking and pre-payment reducing to as low as 30% (80% normally). Some shipyards even contract new order at prices lower than the cost. The workload for most shipyard stands at 1.6 years currently against 3.5years in 2008.
With the growing demand of energy, the development of ocean gas and oil has becoming more important. UBS projects that new orders of offshore plants will keep rising in the next two or three years. As for LNG carriers, new orders are likely to be lower than expectation due to the order boom in 2011 and the limited supply of global LNG production equipment.
Investors’ expectation for shipbuilding industry has become more pessimistic. UBS estimates new orders are to grow by 12% in 2013, however, shipyards’ profits are unlikely to see any recovery. Shipbuilding market is expected to grow worse firstly before becomingbetter.
Prices for new ships have fallen to an eight-year low as shipyards sacrifice profits to win orders.
Global ship orders dropped 53 percent in the first nine months of this year to 31.1 million dwt, according to brokers Clarkson Plc. The shipbroker’s ship price index, which tracks the value of all vessel types, has dropped 7.9 percent this year to 128 in September. That is the lowest since February 2004. The average price for container ships has dropped 39 percent this year to US$11,682 per dwt tonne in October 2012, according to Clarkson. For bulk carriers, prices are down 7.6 percent to US$462.87 a dwt tonne.
According to Golden Destiny, China secured new orders for 125 vessels in the first nine months of this year, surpassing Greece by 28 vessels.
China won new orders for 67 bulkers, 27 tankers, four LNG carriers, 18 containerships, two passenger ships and four offshore plants by the end of this September. Orders for tankers boomed by 325% against the same period of last year due to the large orders from compatriot state-owned companies. On the contrary, orders for bulkers declined by 76%.
In the same period, Greek shipyard totally secured orders for 40 bulker, 20 tankers, 15 gas carriers, 20 boxships and two PCTCs. New orders for containerships see a rise of 250% year on year while orders for gas carriers dropped by 100%.
In the period, China owners invest a total amount of $3.64bn in newbuilding sector while Greece invests $3.80bn which is much lower than the total investment of $8.0bn in last whole year. Besides, Golden Destiny reveals that bulker and tanker are still the main sector Greece invests in, which accounts for 62% of the total.
Overall, global newbuilding market is on the downturn: the average order volume per quarter has declined to 350 vessels from 445 vessels.
Newbuilding orders for commercial ship market appears to pace up with newbuilding enquiries for bulker, containership, etc., being on the march.
Guangzhou Shipyard International has recently inked an order to build three firm VLCC tankers with options for two vessels from compatriot owner Dalian Ocean Shipping Company. Brokers believe these vessels will be delivered from 2015 onwards with prices estimated in the mid $80m.
Also, Bohai Shipbuilding Heavy Industry has booked two plus two VLCCs from China Venezuela Shipping.
As for bulker segment, Universal Shipbuilding of Japan is reported to have awarded an order for one ice-class handysize bulker from Canadian owner Fednav, with delivery slated for the end of 2013. Namura Shipbuildings and Onomichi Dockyard won a total of four bulkers in various sizes - handymax, panamax and capesize - from Taiwan's Shih Wei Navigation.
Meanwhile, active demolition continues until recently. According to Lion Shipbrokers, Bangladesh and Pakistan markets are paying firm levels of $380-410/ldt for bulkers, $390-$430/ldt for tankers and $385-$420/ldt for boxships.
India pays $410-$420/ldt, $425-$435/ldt and $420-430/ldt for bulkers, tankers and containerships, respectively, while China makes a payment of $330-$340/ldt, $345-$355/ldt and $340-350/ldt.
Turkish market, particularly, buys at the lowest prices - $285-$295/ldt, $300-$310/ldt and $295-$300/ldt each.