Mixed Future for Ocean Vessel Asset Values According to the Analysts
Overall doubt remains as to how US - China trade relations will affect the market, January’s terrible mining accident in Brazil when the dam operated by mining group Vale burst in the State of Minas Gerais has already had an impact and this, and other geopolitical factors are likely to depress new build prices.
Following increased combined total ordering activity (bulker, tanker, container, gas) in the first half of 2018, the pace slowed down. You can see the full analysis of each vessel type on the VesselsValue (VV) site but we give a swift breakdown as follows.
Dry bulk suffered following the Brazil accident but was outpaced by supply growth during the first quarter of 2019 and rates have been pushed up. Capesize freight rates have more than quadrupled (from $3,500/day to $19,500/day), while other segments have increased moderately or remained flat through the second quarter.
Ship building has picked up as scrapping increased and new build prices have been rising somewhat. With the dry bulk fleet still growing by an average of 3.3% over the next two years ordering is expected to remain low which should ensure more moderate fleet growth during 2021 and 2022.
Turning to tankers values are up, with product tankers lagging behind other classes. Again increased scrapping is one factor which will tend to give improved earnings and values for tankers. The market direction during the forecast period will of course hinge on oil production developments in non OPEC (US) and OPEC countries, the ensuing oil price, and its impact on demand in oil hungry nations like China and India.
For the tanker new build sector, improved charter earnings and a positive sentiment should ensure that asset values will continue upwards and accelerate towards the end of 2019. Scrapping activity in the first quarter totalled 1.7 million dwt, which is the lowest since the second quarter of 2017. Ordering activity climbed to 6 million dwt in the first quarter of 2019 from 3 million dwt in the fourth quarter of 2018.
In the container sector box traffic picked up strongly as importers tried to beat the perceived coming US - China trade war. There has been a subsequent fall back with short term lower levels anticipated. In Europe, both consumer confidence and industrial demand indicators are declining but imported volumes are growing so far and VV says it thinks this positive trend will dampen towards the New Year but rebound during 2020.
Six months to one year time charter rates for the larger Post Panamax vessels have gained ground and are now on levels comparable to the peak in 2018 for the 6,500 TEU, and above the same peak for the 8,500 TEU. For the smaller feeder vessels, freight rates have moved sideways into the first quarter. Second hand values for the larger Post Panamax vessels increased into 2019, while the smaller feeder vessels moved sideways or marginally up.
Continued slow steaming is likely to produce the effect of an increase in freight rates with a fall in supply. Scrapping has continued to increase making containers the most popular asset class scrapped this year. 60,000 TEU has been scrapped in the first quarter this year.
As far as gas transport is concerned US production of LPG continued to increase pushing up VLGC earnings, Petchem trade is muted with lower Middle Eastern exports but Inter Asian trade, however, is growing. This sector is likely to remain buoyant. VV says new building prices for the VLGC and the MGC segments in the LPG market will be affected by improved charter earnings and a positive sentiment, which should ensure that asset values will continue upwards in 2019 and into 2020, whilst Handy size and smaller pressurised LPG vessels should also see a moderate rise.
Photo: The Brazilian mine disaster which killed 248 when a dam collecting waste from a Vale operation gave way has had a severe impact and led to criticism of the company.
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