As 10-year ship prices rise, dry bulk companies’ value should increase



Higher secondhand vessel values

While newbuild prices for Panamax vessels were weak (or neutral depending on how you see it), vessel values for 10 year old Panamax and Capesize continued its upward trend in March. Panamax vessel value rose 2.27% in March, increasing from $22 million in Feburary to $22.5 million in March. Capesize vessels stole the spot light again, rising from $35 million in February to $38 million in March, reflecting an 8.57% increase.
Bulk Vessel 10 Year Old

Difference from newbuilds

Article continues below advertisement

Unlike newbuilds, buyers and sellers do not have to wait for about two years to have the ships delivered. So price movements in secondhand vessels tend to reflect industry participants’ expectation of the medium-term fundamentals. When newbuild prices continued to fall throughout much of 2009, much due to uncertain around a large backlog of orders placed before pre-2008 when rates were high, secondhand vessels rallied along with the Baltic Dry Index.

Since buyers and sellers are more medium-term thinkers, they’re more responsive to industry turnarounds compared to newbuilds. Although it’s only about one or two months, share prices can move fast within a small time period. Given current level of Capesize and Panamax 10-years old prices, we could say secondary market participants are expecting the Baltic Dry Index to perhaps average ~2,300 at the moment, almost one thousand points above current level of 1,316.

Vessel price appreciation

Investors should know that secondhand vessel values are used by analysts to value dry bulk shipping companies in the stock market. The higher the value of assets, the higher the value of a company’s assets. Changes to the value of a firm’s asset would also have a magnified impact on shareholders’ equity (value of ownership in the company) after subtracting out debt.

As long as these prices continue to rise, dry bulk shippers such as Diana Shipping Inc. (DSX), Knightsbridge Tankers Ltd. (VLCCF), Safe Bulkers Inc. (SB), and Navios Maritime Holdings Inc. (NM) should continue to benefit from higher rates and higher valuations–unless already priced in. Note that if vessel values eventually come down because of over optimistic expectations of rates that didn’t realize, dry bulk shipping stocks might get negatively impacted.


More From Market Realist