Dry Bulk asset prices on the rising path
16/05/2016

Dry Bulk asset prices on the rising path

Carrying on from the rally noted in freight rates during the second half of March, most of April and the first week of May, sentiment across the dry bulk market has improved considerably, despite the still fearful fundamentals pointing for a possible continuation of problems to be faced ahead. With prices having bottomed out in April and a considerable number of shipowners itching to get in on the Secondhand purchasing action, we quickly started to note the presence of an increasing price momentum. Up until a couple of weeks ago little “tangible” evidence of this had emerged in the form of actual transactions. However just after the Greek Easter holidays, this all started to change. The majority of change seemed to be coming from the more modern units, given that they have a longer potential life span (and in turn a longer repayment period if all goes wrong) while earnings are still relatively weak and there are but a few that believe in a quick market recovery.

In cases such as the much discussed M/V “ARCHIMEDES” (81K dwt, blt 2011 S. Korea) it managed to outperform younger units (vessels built 2012 and 2013) in an auction sale on the 3rd of May, achieving a price of around mid/high US$ 14’s (the winning offer was reported to be just shy of SGD 20.0m) while sale of similar and younger units concluded in March and early April were seeing levels closer to US$ 12-13.75m. What’s more astonishing about this particular case is that the vessel had originally been sold back in December 2015 (though the sale failed) at a price of US$ 14.6m.

Similar cases have been noted in the Ultramax size range, with prices for a Japanese built prompt resale now valued in the region of around US$ 20.5m given the most recent sales, while a month back this figure would be closer to the region of US$ 19.0m, a US$ 1.5m increase (7.9% increase in just a few weeks).

Yet even given the above, market conditions are strained. Sellers are still not in the best position under these current prevailing prices (given the fact that most of these assets were originally ordered only a few years ago for considerably higher sum of money), while things on the buying side aren’t doing much better so as to support prices hikes at such a fast pace. Buyers are still relatively few in this market, most held back by lacking ease of access to financing while all holding themselves back after having been spooked by how quickly the freight market collapsed in the final quarter of 2015. The majority of buyers out there (as pointed out several times in the past) are mainly out there to take advantage of the asset play potential. This however is a factor highly reliant on the fact that prices remain at aggressively low levels. The recent price hikes could easily start to overturn this major buying factor and given that earnings are still underperforming, there will be little else left to keep buyers there if prices rise too fast and too far. This is one of the main reasons that it looks as though we are setting up for another “sticky point” in asset prices, taking considerably more market factors to drive asset over the “next mile” (next 7-8% increase).

In the meantime, for those who can find good opportunities and have the cash and/or financing to support them, “sales” are still on for dry bulkers.

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