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GDSA WEEKLY S&P SECONDHAND AND DEMOLITION MARKET ANALYSIS: Week 33
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Source:Golden Destiny

August continues to be hot in secondhand purchasing activity with a lower pace of demolition transactions, higher scrap prices and dull newbuilding interesting. This week was marked by intense volume of bulk carrier newbuilding contracts, from kamarsarmax to handysize vessels, strong buying appetite in the secondhand market from an ebloc MR tanker deal for nine coated product tankers and spectacular demolition transactions at levels of excess $400/ldt.
Overall, 41 transactions reported worldwide in the secondhand and demolition market, up by 54% week on week with 183% and 160% increase in demolition and newbuilding activity respectively. At similar week in 2011, the total S&P activity was standing at 66% lower levels, when 14 transactions had been reported and secondhand ship purchasing activity was 42% lower than the ordering business.

SECONDHAND MARKET
A strong resale appetite seems that will be the new trend for the rest of the year and the upcoming 2013 as the slump of newbuilding demand creates opportunities for shipowners to proceeded in alluring S&P resale transactions from cancellations in Chinese and Korean yards. Head of China based Yangzijiang Shipbuilding forecasts that the shipbuilding downturn will last for five years from the second half of 2011, unless the overcapacity is filtered out. Owners’ default to honor their newbuilding contracts from failure to meet their financial obligations, under the tight European ship lending and weak levels of earnings from dreadful freight rates, creates investment opportunities for resale transactions at discounted prices. Recently, market sources revealed that Yangzijiang Shipbuilding cancelled eight newbuilding contracts, due to customers’ failure to meet their financial obligations. There were rumors that two 34,000dwt bulkers from Yangzijiang, Hull No.944 & 945, originally ordered by Freeseas, were cancelled and resold to Thailand’s Precious Shipping for $19,4mil each, but Precious managing director Khalid Hashim denied that the sale has been agreed, although he confirmed that there are discussions as they are still negotiating the price.
The secondhand purchasing activity keeps hot amid the lull summer season with an interesting S&P transaction in the tanker segment that pushed the weekly S&P activity above 20 total transactions. U.S investors Blackstone have purchased nine coated product carriers from the Hartman group, with Hartman maintaining 15% equity, no price details have been revealed.
Overall, 23 vessels reported to have changed hands this week at a total invested capital in the region of US$ 189,7 mil, 12 deals reported at an undisclosed sale price, with containers holding 52% of the total S&P activity, and bulk carriers 31%. In terms of the reported number of transactions, the S&P activity is up by 15% from last week’s activity with a 500% rise of purchasing momentum in the tanker segment, while is up by 229% comparable with previous year’s weekly S&P activity, when 7 vessels induced buyers’ interest at a total invested capital of about $294,1 million, with limited buyers’ interest in bulk carrier, tanker and container purchases. In terms of invested capital, the bulk segment appears the most overweight by attracting about 58% of the total amount invested through resale newbuilding transactions in the panamax and supramax segment.

NEWBUILDING MARKET
In the newbuilding market, ordering interest has been picked up this week with newbuilding transactions more than 30 from renewed fresh activity in the bulk carrier segment. Supramax size in the bulk carrier segment and the MR product size in the tanker segment are still the most popular newbuilding investments. Some kamsarmax newbuilding contracts came to light from struggling Japanese yards for the account of trading house in Chinese Tsuneishi Zhoushan, as roduction costs are cheaper, with deliveries in the first half of 2014. Notable order of this week has been in the Ro-Ro segment with the placement of five giant RO-RO containerships from Atlantic Container Line for construction in Chinese shipbuilder Hudong-Zhonghua. In the bulk carrier segment, In the offshore segment, investors are still showing interest for building specialized units with Maersk Drilling planning to invest $5billion in eight new oil rigs over the next five years. Maersk Drilling chief executive Claus Hemmingsen confirmed in Lloyds List that drillships will be an integral part of the investment plan. Maersk Drilling believes that strong demand for deepwater drilling will replace declining activity in shallow waters and will keep its tonnage busy.
Overall, the week closed with 39 fresh orders reported worldwide at a total deadweight of 1,336,091 tons, posting 160% increase on a weekly basis, from a 800% rise in the bulk carrier newbuilding business keeping the lion share 46% of this week’s total volume of newbuilding contracts. At similar week closing in 2011, the newbuilding business was down by 70%, when 12 fresh orders had been reported with 5 newbuilding contracts in the tanker segment, 3 in the bulk carrier and 2 in the gas tanker. In terms of invested capital, the total amount of money invested is estimated at region $429 mil with 74% of the total number of orders being reported at an undisclosed contract price. The offshore segment appears to be the most overweight by holding 71% of this week’s total invested capital, while also a hefty amount of money has invested also in the Ro-Ro segment for giant Ro-Ro container vessels at about $700mil.
In the bulk carrier segment, Laskaridis Shipping of Greece placed a new order for two more ultramax bulkers, dolphin-64 class, 64,000dwt at Chinese shipbuilder Penglai Jinglu, with delivery in 2014, following last week’s order for two 64,000dwt units in Jinhai. In the handymax segment, TMS Ship Management of Germany has ordered six 43,500dwt units in Qingshan Shipyard of China for construction under a new fuel-efficient design for delivery Q2 2014 and Q2 2015. In the handysize segment, Canadian shipowner Fednav has placed a new order for six 35,000dwt ice class bulkers at Japan’s Oshima yard for delivery during 2015 and 2016 under a new fuel efficient design. A Fednav statement said: “The new vessels represent a major step forward in terms of environmental improvements. With their advanced design and more efficient engines, they will consume 20% less fuel and produce 20% less emissions than vessels built by Oshima Shipyard for Fednav 10 years ago, ships already among the most efficient of their time. “The newbuildings will be assigned class society DNV’s clean design notation."
In the tanker segment, Norden, Danish listed dry bulk and product tanker operator, has ordered two handysize fuel-efficient product tankers, with options for four more, for construction in Guangzhou Shipyard international in China, with delivery in 2014 at an undisclosed contract price. In the small chemical segment, Chinese state-owned Chongqing Chuangdong Shipbuilding Heavy Industry Corp has secured four 2,450dwt stainless steel chemical tanker newbuildings from local company Shanghai Sanhan Shipping for delivery in 2013 and 2014. The contract price has not been disclosed, but market sources suggest that the cost is around $12mil each unit.
In the gas tanker segment, LPG owner Navigator Gas has declared an option for two more 21,000 cbm ethylene carriers at Jiangnan Shipyard of China for delivery in 2014 at a price of $50mil each.
In the RO-RO segment, Chinese shipbuilder Hudong-Zhonghua has sealed an anticipated order for five giant ro-ro containerships of 3,800 TEU from New Jersey based Atlantic Container Line for delivery in 2015. ACL’s president and chief executive Andrew Abbot declines to reveal the price paid for newbuildings, but the contract price is well below $140-$150 mil each. The newbuilding contract marks Hudong Zhonghua shipyard’s diversification in a high value added contract and the construction of more specialized units. A Hudong Zhonghua official said: “To stay ahead of the competition, Hudong Zhonghua is expanding its product portfolio and moving towards high value added ships, such as conros and stainless steel chemical tankers”.
In the car carrier segment, market players say that Japanese shipping giants Nippon Yusen Kaisha, Mitsui OSK Lines and Kawasaki Kisen Kasha are seeking to expand their car carrier fleet with newbuildings. The companies are said to be looking at 7,300 car equivalent units (ceu) post panamax vessels. The largest PCTCs they currently operate are up to 6,500 ceu as the length of loading and discharging berths in Japan restricts the size of ships. There are market rumors that NYK has already booked three to five vessels at domestic yards in 2014 and 2015. Shin Kurushima Dockyard and a partnership between Imabari Shipbuilding and Mitsubish Heavy Industries are said to be involved with sources indicating a price of $75mil each.
In the offshore segment, Sembcorp Marine, secured a $135m rig order for its subsidiary Jurong Shipyard from Diamond Offshore. The  rig,  to  be  named  Ocean  Apex,  would  be  delivered  in  2Q14  and  will  be  capable  of  operating  down  to  6,000ft  and accommodating 140 crew. In addition, COSCO Corp (Singapore) said it has won a $170M rig order from Talland Navigation. The Singapore-listed builder and bulk shipping arm of China COSCO said COSCO (Dalian) Shipyard will execute the order. BAE SYSTEMS said has won a new order for two platform supply vessels from US-based GulfMark Offshore. The 88m-long ships will be built to an MMC Ship Design & Marine Consulting design at BAE’s shipyard in Mobile, Alabama, (formerly known as Atlantic Marine) and will be constructed for Jones Act compliance. GulfMark has arranged options for two further ships as part of the contract. Delivery of the firm vessels is booked for 2014 and 2015. According to a BAE Systems statement: “ The contract reflects continued growth in US commercial shipbuilding for BAE Systems and a major step forward in the company’s support to the oil and gas industry.”

DEMOLITION MARKET
In the demolition market, some firm figures have been witnessed during the last days for well positioned tonnage with prompt delivery at levels xs $400/ldt for dry bulk carriers, while the question is how long these rates could be sustained. The capacity in Bangladesh seems to be fulfilled, while steel markets are not justifying these rates and there are fears that soon will be faded away. Indian ship recyclers remain aggressive with owners seeking firm rates of excess $400/ldt for dry bulk disposals as last concluded deals give them the opportunity to negotiate their vessels disposals at firmer rates than last two weeks’ levels.
Price levels offered in the Indian-subcontinent region have moved $20-$50/ldt higher from the end of June for dry/general units with India offering $400/ldt, while in China levels have fallen to $310/ldt, when at the end of March Chinese ship recyclers were offering even $420/ldt, $35/ldt less than Bangladesh and India. For wet units, India and Pakistan offer $425-$430/ldt from $380/ldt at the end of June, while China offers only $330/ldt from $435/ldt at the end of March.
A notable demo deal of this week was for a RO-RO vessel “MARIENBORG” with 14,120/ldt achieving a firm price of $450/ldt for disposal in India. In the tanker segment, M/T “YAMAMAH” with 9,318/ldt secured $622/ldt in India for a guaranteed green recycling, including 837tons of solid stainless steel on board.
The week ended with 18 vessels reported to have been headed to the scrap yards of total deadweight 805,554 tons. In terms of the reported number of transactions, the demolition activity is up by 200% from previous week’s business with 75% rise in bulk carrier scrapping activity. In terms of total deadweight sent for scrap, there has been an increase of 19%, with Bangladesh winning 5 and India 8 of the total 18 demolition transactions.
At a similar week in 2011, demolition activity was 61% lower than today’s levels, in terms of the reported number of transactions, when 7 vessels had been reported for scrap of total deadweight 194,364 tons with bulk carriers and liners holding 86% of the total number of vessels sent for disposal. Scrap prices were floating at stronger levels with India and Bangladesh offering $495-$500/ldt for dry and $520-$525/ldt for wet cargo.

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