Dry bulk shipping vessel values usually show the expectations for future freight rates. While newbuilds’ rates gauge the long-term fundamentals, secondhand vessel rates usually represent the short to medium-term rate expectations.
Newbuild prices fell more
Newbuild vessel prices fell more in October. The prices also fell in September. According to data from Athenian Shipbrokers for October, newbuilds prices were $47 million, $26.1 million, $24.4 million, and $20.5 million for Capesize, Panamax, Handymax, and Handysize vessels, respectively.
Compared to the previous month, the newbuilds prices fell -2.5% for Capesize and -1.2% for Handymax vessels. The prices for Panamax and Handysize vessels remained constant. Newbuild prices fell 14.2% YoY (year-over-year) for Capesize vessels and 11% for Panamax vessels. Falling newbuild vessel prices shouldn’t be a surprise in a market environment that’s characterized by overcapacity amid weakening demand. Prices fell each month since January 2015.
Secondhand vessels fell too
Secondhand vessel prices reflect the industry participants’ expectation of the medium-term fundamentals. Secondhand vessels fell steeply in October. The values for five-year-old Capesize vessels were hit especially hard. They fell by 8.6% month-over-month. Five-year-old Panamax vessel prices also fell by 5.6% month-over-month. This took the YTD (year-to-date) fall to 11.5%. The above chart shows the trend in newbuilds and secondhand vessel prices.
The activity in the newbuilds space is slowing down considerably. While scrapping is continuing at high levels, the demand growth from China (MCHI) isn’t giving dry bulk shippers much confidence to order newbuilds. In contrast, the outlook for secondhand vessel prices depends on the freight activity—particularly in the iron ore and coal industries. Any near-term rise in the seaborne trade for these commodities doesn’t seem to be forthcoming. Meanwhile, stocks like Navios Maritime Partners (NMM), Scorpio Bulkers (SALT), Star Bulk Carriers (SBLK), DryShips (DRYS), and Navios Maritime Holdings (NM) could remain depressed.
The Guggenheim Shipping ETF (SEA) will likely be affected by vessel price movements. The SPDR S&P Metals and Mining ETF (XME) provides investors with more diversified exposure to iron ore, coal, and other commodities.
In the next part of this series, we’ll see how the coal trade is progressing in China and India.