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Have newbuild prices bottomed out?

Splash is hearing more and more about shipyards welcoming owners keen to catch the bottom of the newbuild price cycle. Chief correspondent Jason Jiang assesses if we have hit rock bottom yet.

Boardrooms at Asian yards are welcoming more and more inquisitive shipowners, all keen to sign contracts to catch the very bottom of the newbuild pricing cycle. While the actual number of sealed deals is only up 3% year-on-year, there have been many more letters of intent signed amid continued chatter from analysts and brokers maintaining that newbuild prices have finally hit rock bottom and are set to climb.

But have newbuild prices really bottomed out?

Clarkson’s Newbuilding Price Index is close to a ten-year low but prices for certain types of vessels are showing signs of edging up.

“Whether this is the start of a longer term trend or not is hard to say, certainly after such a prolonged period of inactivity, yards are hungry and an appreciation in second hand bulker prices makes the case for newbuilding more attractive than it has been. On the other hand bank finance is still in short supply and suspect many owners are wary of shooting themselves in the foot by increasing supply again just when things finally appear to be coming back into balance,” says Martin Rowe, managing director of Clarkson Platou Asia HK.

“The newbuilding market has came to life with the numerous rumoured deals that where in the works now coming to light. Interest has intensified considerably these past months, with in part the increase in secondhand prices having pushed a number of potential buyers to this direction, while at the same time the slowly firming prices being quoted by shipbuilders pushing others to place orders on speculation fearing that they will lose the window to secure these low prices before it closes shut,” Allied Shipbroking said in a recent market report.

Allied Shipbroking believes that given the current cost structure present in the main shipbuilding nations, prices are unlikely to hold at such low levels for very long. However given the state of the underlining fundamentals in the main shipping markets, there is currently little reason for another building binge to hit any time soon.

Another factor to bear in mind are local currencies. Take the Korean won, for instance. This has been strengthening against the US dollar this year, which also has a significant effect on ship pricing.

What is clear, judging by Splash headlines in 2017 to date, interest for newbuilds is definitely picking up, led by Greek owners.

Speaking at last week’s Maritime CEO Forum in Singapore, Lasse Kristoffersen, the boss of Norwegian dry bulk firm Torvald Klaveness, revealed how he’d just been in Greece and met 20 owners, half of whom told him they were looking at ordering replacement tonnage.

“I am afraid there is lot more action going on at shipyard boardrooms in China than we know,” Kristoffersen warned.

Peter Sand, chief shipping analyst at BIMCO, believes newbuild prices for dry bulk carriers and container ships have clearly bottomed out.

“For tankers, prices could still slide for a while, but not much, if we imagine for a while that owners begin to order dry bulk and container ships again. Then the pressure to lower tanker newbuild prices is off. Moreover, the recent flurry of new tanker orders would spur no yard to lower the listed prices further,” Sand says.

“Secondhand market and prices have seen quite a surge on as the gap closed between newbuild prices and secondhand prices. Industry focus must remain on handling the supply side, including limiting newbuild orderings to prevent another downturn caused by excessive ordering,” Sand warns.

William Bennett, a senior analyst at VesselsValue, also holds the view that newbuild prices have bottomed out in the short term.

Bennett has seen ordering over the last couple of months pick up.

According to Bennett, South Korea has been taking tanker orders recently, particularly for VLCCs, which have seen a resurgence in newbuild orders suggesting some may see the bottom for order prices.

Most of the Japanese business is done off forward contracts so there is little pressure on them to take orders, while there is increased bulker ordering in China where empty slots are a plenty and where prices have started to rise making the orders feasible for the yards.

VesselsValue data shows in the first quarter of 2017, over $414m in bulker orders have been placed at Chinese yards in comparison to $66m worth of orders in the same period in 2016.

“With secondhand prices coming very close to current newbuild levels sentiment is high for on the water tonnage. Ordering activity in 2017 has been very weak following serious oversupply. Given current dry bulk sentiment, order prices may be on the up again and with levels not being this low in over 15 years, inking newbuilds has become an increasingly attractive option,” says Bennett.

Splash readers seem to think newbuild prices have bottomed out. 59% of the 300-plus voters in our latest topical shipping survey, MarPoll, suggest prices are set to rise.

Full results of the latest MarPoll will be carried in the next issue of Maritime CEO magazine due out later this month. Other questions posed include a look at autonomous ships, tanker consolidation, making shipping a more attractive career option for today’s youth and bunker fuel levies among other issues. To vote takes just two minutes – although we do appreciate readers leaving comments – and there is no need for any registration. To vote click here.

Jason Jiang

Jason is one of the most prolific writers on the diverse China shipping & logistics industry and his access to the major maritime players with business in China has proved an invaluable source of exclusives. Having been working at Asia Shipping Media since inception, Jason is the chief correspondent of Splash and associate editor of Maritime CEO magazine. Previously he had written for a host of titles including Supply Chain Asia, Cargo Facts and Air Cargo Week.
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