What new build prices reflect
The prices of new builds are useful indicators that reflect the dry bulk shipping industry’s future fundamental outlook. New prices often rise because of higher orders for ships. Usually, this is the result of managements’ speculation that future shipping rates (which can increase or stay the same from the current level) will be profitable enough to generate good returns from these new assets. Conversely, if future rates are expected to be unprofitable, then demand for new ships and ship prices will fall.
Newbuild vessel prices rose in September
According to RS Platou’s monthly report, vessel prices for three categories of vessels—Capesize, Panamax, and Handymax—continued to show a rising trend on September. Of the three classes, Capesize jumped the most, by 4.2%, rising from $48 million to $40 million. Panamax and Handymax vessels both saw a ~1.9% increase in vessel price.
Higher prices reflect improving fundamentals for the dry bulk shipping industry. As we’ve seen, rates for Capesize ships are now at levels unseen since 2010, which have lifted Panamax rates too. Despite many analysts raising cautious signs, higher newbuild price reflects managers’ optimism that the dry bulk shipping recovery is alive and well.
Companies issuing new shares to purchase vessels
Investors might have noticed that several companies have been issuing new shares. Unlike new share issuance seen in prior years, current new shares are primarily used to fund new ships that are expected to be quite profitable when they arrive in a few years. While new build prices have yet to return to 2010 highs, it wouldn’t be too long before we see such levels as shipping rates continue to recover and companies’ earnings normalize.
Higher vessel prices will translate to higher share prices
This development will have a positive impact on share prices. As many might have noticed, when new build prices turned around at the beginning of the year, several dry bulk shipping companies rallied—some earlier than others. September’s jump in new build Capesize value is encouraging evidence of a dry bulk recovery. While the price increase appears to be weaker for Panamax and Handymax, they’re heading in the right direction. As long as an uptrend maintains, expect shipping companies like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Safe Bulkers Inc. (SB) and Navios Maritime Holdings Inc. (NM) to rise higher over the medium to long term. This impact on Navios Maritime Partners LP (NMM) may be limited, since several of its premium contracts aren’t expected to mature within the next few years.
- Part 1 - Idea: Do dry bulk stocks actually follow the Baltic Dry Index?
- Part 2 - New purchase orders suggest bright outlook for dry bulk shipping
- Part 3 - Shippers scrapped more vessels, but medium-term positive remains
- Part 4 - Stable construction: Why managers expect medium-term higher rates
- Part 5 - Why lower capacity growth will support dry bulk shipping rates
- Part 6 - Iron ore inventory still low, good for dry bulk shipping stocks
- Part 7 - Lower iron ore prices will support dry bulk shipping companies
- Part 8 - Brazil exported less iron ore but September trend still favorable
- Part 9 - Australia exported record iron ore in September, a positive trend
- Part 10 - Higher new build prices mean higher dry bulk shipping share prices
- Part 11 - Why second-hand ship values suggest dry bulk shares will climb
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